State of the Industry Report: Sidebars
Taking the Lead in Uncertain Times by Bob TafaroInconsistency and uncertainty characterized the past year, yet neither was necessarily a show-stopper for those of us in the roofing industry that have successfully focused our efforts on continued innovation, value and quality.
2010 started strong in residential roofing - following a year marked by a declining housing market, reduced storm activity, and a significant drop in demand. Yet, that strong start was followed by a significant slowdown in the second half.
At year end, channel inventories were relatively low and, given recent line closures, manufacturing capacity and overall demand seem to be proportionate. As in 2009, the year was marked by significant differences in geographic performance, such as a harsh winter in the Northeast that drove a lot of business.
However, some product lines and markets were pleasant surprises in 2010. Commercial business, for example, performed a little better than expected due in part to an upturn in stimulus-related public spending at the start of the year. The TPO sector performed relatively well and continues to gain share from other single-ply alternatives. Non-residential construction has started to stabilize, albeit at a low level.
The soft demand we’ve experienced for some time now has forced our industry to think smarter about how to satisfy and sell to customers. To that end, we have taken product quality and innovation to new levels. For example, the use of residential roofing accessories continues to grow as more people see the value of secure, integrated roofing systems. We’ve found that when given the choice, homeowners tend to prefer quality versus commodity product offerings.
Another example is continued adoption around labor-saving commercial accessories. Furthermore, ISO is increasingly critical as a commercial roof component, with insulation becoming more important in system design.
Some product innovations are harder to see, such as advanced shingle technology that uses higher quality materials and leading-edge technology to eliminate waste and unneeded fillers to provide a better product for homeowners. Other innovations, such as those around product appearance, provide contractors with more options to offer homeowners.
Beyond product innovations, suppliers are innovating through information technology, particularly in ways that give customers more self-service solutions for training crews, ordering material, planning jobs, and closing more sales.
In addition to the innovations by manufacturers, there’s a significant role available to contractors who want to be leaders in quality and innovation. Savvy contractors are finding ways to differentiate themselves through their expertise - whether through thorough installations, the use of quality materials, or the use of solutions that enhances aesthetic appeal. For example, solar solutions are becoming a differentiator for contractors who have the means and focus to invest in it now. All contractors can and should demonstrate quality and innovation through their adoption of new information technology, particularly in marketing and job management.
Looking to 2011, we expect modest growth at best, especially in the first half of the year, given continued high unemployment and ongoing public budget constraints. Of course, any predications on demand always are subject to storm activity, as well as to general economic conditions.
2011 should be the year when the roofing industry takes the lead in innovations. For manufacturers, it means focusing our efforts on “hard to reach” areas, such as next-generation solar products that perform in high temperatures while still being lightweight, aesthetically pleasing, easy to install and cost competitive. We also need to address the rapid adoption of sustainability codes, for which the manufacturer and contractor industry groups need to take the lead. We need to ensure that groups overseeing sustainability and solar building standards recognize the critical value of the roofing industry in helping consumers realize benefits of these new technologies.
Continued market uncertainty is no excuse for poor performance. By continuing to take the lead on improving quality and being innovative, our industry won’t merely survive - we can thrive.
Bob Tafaro is President and Chief Executive Officer of GAF Materials Corporation. For more information, visit www.gaf.com.
Five Recommendations For 2011 by John DeRosa Jr.Here’s what I would offer as my top five recommendations for the year ahead:
1. Take a close look at your website. If you haven’t updated it in the past year, it’s probably out of date.
• Has your site been optimized and does it leverage all of the tools that will enable you to be seen (video, photos, social media, etc.)?
• What type of impression does your website make? Researchers found that the brain makes decisions in just a 20th of a second of viewing a web page. This snap judgment forms a lasting impression that will be the critical difference between their decision to remain on your site or click that big “Back” button on their web browser. If you consider this relevant to your average contract size, that would suggest that you have a 20th of a second to make an $18,000 impression, for example.
2. Manage your “Moments of Truth.” Customers will place a much higher value on what they say and what they conclude than on anything you tell them. Your actions must speak loader than your words. Make sure that you feed the perception that you’ll shatter their expectations and deliver a significantly better experience than your competition. This must happen every time your prospect comes in contact with your business.
3. Find a new and improved way to differentiate yourself. Customers make buying decisions and justify the price they pay based on the differences they see and how it satisfies their buying criteria. One way to differentiate is to ask better questions during the sales process. Try to focus on the process rather than the outcome. We need to make sure that the buyer recognizes that they are not buying a finished product made in a factory; they’re buying components that must be fabricated by a reputable, experienced professional. At the end of the day, regardless of who they choose to the do the project, they are going to have a new roof. But ask yourself this: When you consider the project from start to finish, how will you eliminate their concerns, better manage their expectations and deliver a significantly better experience?
4. Get some sales training for your salespeople. I did 32 sales seminars last year and I was amazed that a majority of the participants claimed to have never participated in any formal sales training. Leads are far too expensive and too hard to come by to simply hand them over to an untrained salesperson. Make sure your salespeople understand the selling process and have the skills to move your client through that process. They should also be trained and prepared to ask powerful, emotionally engaging questions and deliver impactful proposal presentations that position you as the contractor of choice for the project.
5. Be territorial about the neighborhoods you work in. I’m always surprised by the limited number of residential roofers who do not cloverleaf and use radius marketing to target the neighbors of their current clients. These are prospects that have a home that was likely built at the same time, used the same type of materials and was impacted by the same weather conditions. Sending out a mailer and knocking on a few doors of your clients’ neighbors may get the neighbors talking will be very effective when combined with a strong referral program.
John DeRosa Jr. is Manager, Sales and Contractor Development for IKO Sales, Inc. ( www.iko.com ). He can be reached at John.DeRosa@IKO.com.
Coping With a Changing World by Monroe PorterAs I look into my magic ball trying to predict the future, the picture is, well, complicated. No one really has the answer to what tomorrow brings, and the U.S. economy is an incredibly large and complicated beast. California, when separated from the United States, would be the eighth largest economy in the world. I wish I was as confident as TV’s talking pundits who so eloquently fill the news airways with their predictions.
I have made some pretty good past predictions. In 1980, I predicted that by the year 2000 over 50 percent of the construction workers would be Hispanic. In 1990, I predicted the economy would slow after 2005. Both of these predictions were pretty simple to make as birth rates dictated a shortage of skilled workers in the 90s and the first baby boomers began to turn 60 in 2005. Making future predictions from birth data alone is not so easy. The U.S. debt, global market dependency, banking issues, the collapse of the housing market, political deadlock and the rapid growth of technology have all clouded my crystal ball, but here are some things I feel pretty strongly about.
Technology is here to stay. It took 38 years to have 50 million people use the radio, 13 years for 50 million to watch TV and only 4 years to reach 50 million Internet users. Facebook cracked the 100 million user level in nine months. Now, of course, all of this data you can get off the Internet. I am a little unsure of what all this means to contractors, but it is a safe bet that those folks who cannot turn their computer on and off are going to get further and further behind.
New construction is slow and will continue to be. We keep hearing that new housing starts are on the way up but when, in some areas, the market is off 75 percent of where it peaked, a minor increase is really nothing to speak of. Also, there are so many foreclosures it is hard to get a real handle on the data. It will take years for housing to turn around in many areas of the country. To make matters worse, in areas where there is not a housing problem, negative media and stingy banks have also brought everything to a halt.
Commercial construction has taken the latest hit and is going to be down for a while. We simply have too many buildings and with high retail and office space vacancies; the demand is just not there. New commercial roofers will find a better market when some of the idiots who are bidding at 30 percent below hard costs finally start to go broke. Finishing jobs for bonding companies also offers some opportunities.
I think the real issue of success has a lot to do with expectations. Economies have a way of functioning no matter what is going on. Things will continue to slow and the U.S. construction market will move towards more of a European market where contracting growth will be in maintenance and repair of existing buildings.
The important thing is to look for internal factors and control what you can. Keep a positive attitude and don’t talk yourself into doomsday. One of my favorite quotes is from Mark Twain: “I’ve experienced many terrible things in my life, a few of which actually happened.”
Monroe Porter is President of PROOF Management Consultants. He can be reached at email@example.com.
Focus on Worker Safety by Chip MacdonaldAccording to my personal and unscientific survey of the Bureau of Labor Statistics’ records, the highest and lowest figures on construction permits and housing starts both seem to bring increased employee injury and fatality rates (IFR) per 100,000 workers in the United States. Why is this?
As employment in the roofing industry diminishes due to socio-economic and/or environmental factors, the total number of roofers employed declines, and yet their IFR seems to rise slightly from the annual mean value. Similarly, as the building economy improves and the filing of residential/commercial building permits increase, the number of roofers employed also rises. Accompanying this “boom time” can be a subsequent rise in the IFR.
Building contractors have a tendency to unconsciously risk the health and safety of their employees when the profit margin is low as well as high. Not enough work and winter both produce layoffs. Those workers who are retained are often asked to do more with less and just a little bit quicker. When profits wind up in the low single digits, workplace safety often becomes the first budget casualty.
When the economy or weather improves, sales rise and hiring demands extend from experienced roofers all the way to day labor picked up on the corner. The mind-set of many surviving contractors lies in “making hay while the sun shines” by increasing overtime, spreading labor thin and pushing unprepared and less-experienced personnel into unreasonable roofing situations. Almost two-thirds of my expert witness consultations in 10 years have been roofer injury cases.
As a previous construction supervisor and a current safety manager, I’ve finally arrived at a philosophical “crack in the ice” on which I stand: As this particularly deep recession appears to result in an evidently jobless recovery, I expect rooftop injuries and deaths to increase in proportion to the work available, while not necessarily rising in total numbers over previous years. However, should the economic pendulum swing back, we should all be prepared to meet the dark side of our construction trades - our basic nature to try and make up for long-lost profits before the bubble inevitably bursts again, at the expense of our workers’ safety.
It’s in most contractors’ DNA to survive by any means in order to make a profit and hire yet another day. I’ve come to realize it’s not in most contractors’ nature to make an uncompromising commitment to “Safety First, Quality Second and Productivity Third.” Realistically, I don’t believe I will ever witness a viable middle ground on the issue of worker safety. Some roofing contractors will work for the short dollar and hope and pray for fewer accidents, while fewer still will hold steadfastly to a zero-accident policy while hoping and praying for more profits. Unfortunately, we all know who will be the lower of these two bidders.
Chip Macdonald is President of Best Safety LLC in Cambridge, N.Y. He can be reached at firstname.lastname@example.org.
Keep an Eye on Washington by Craig BrightupTwo trends roofing contractors should keep an eye on are rising fuel prices and the slew of new regulations coming from Washington, D.C. These issues must be addressed by Congress to give residential and commercial construction the best chance to recover.
Roofing plays dual roles in the U.S. energy-policy equation. On the demand side, it is an important part of the “green” building movement and the previous Congress promoted energy-efficiency incentive proposals like Home Star and Building Star. It also favored alternative energy production including wind and solar as opposed to domestic fossil fuel production.
However, the energy-use side of the equation is crucial for contractors, who could see increasing economic pressure imposed because of roofing’s sensitivity to raw material price increases such as oil. Many economists are forecasting that oil will go to $100 a barrel and gas to $4 a gallon in 2011. This could increase contractors’ overhead since most roofing systems use oil, and, even for those that don’t, contractors will still have to put gas in their trucks and equipment.
Fortunately, the midterm election produced a Congress that can be expected to pursue an “all-of-the-above” approach to energy legislation that will place a greater emphasis on domestic fuel production including oil, gas, coal and nuclear. Also, this Congress will engage in oversight of federal agencies to examine the avalanche of new regulations that could put even more pressure on contractors.
New regulations that could cause significant harm to roofing contractors include EPA’s greenhouse gas regulations, which when fully implemented could bring construction to a halt. Also, there is OSHA’s proposal to add a column to the Injuries and Illness 300 Log for musculoskeletal disorders which could be used to resurrect the ergonomics standard. In addition, OSHA is proposing a massive new Injury and Illness Prevention Program (I2P2), and has rescinded the interim enforcement rule that allowed for the use of slide guards on certain residential roofs with slopes of up to 8:12.
Contractors are encouraged to keep abreast of policy developments and communicate with their U.S. Senators and Representative to see that these impediments do not stymie what hopefully will be a robust recovery for construction. It is important that contractors make their voices heard because this Congress will be more receptive to the concerns of employers and removing regulatory burdens, and also will try to take steps to stabilize energy prices and put the country on a path toward energy independence.
Craig Brightup is CEO of The Brightup Group, Washington, D.C. He can be reached at email@example.com.
Secrets Behind Green Profits by Jim HoffMany of the recognized green trends in roofing - high thermal roofs, cool roofs, solar roofs, green roofs, etc. - are now merging into a more comprehensive approach to sustainable rooftops. We saw clear evidence of this trend at the Center this past year when we evaluated projects for our annual Excellence in Design Awards. In the past, we were able to identify the best cool roof, the best PV roof, the best example of roof recycling, etc. But in 2010, every serious entry combined multiple sustainable roofing strategies. As an example, this year’s overall winner - the roof on the National Great Rivers Research Center in Alton, Ill. - featured native vegetation, solar panels, daylighting, material recycling, and many other sustainable features including a rooftop classroom area for environmental education.
This trend toward increasing sophistication can also be seen in the Center’s recent development of the RoofPoint™ guideline for environmentally innovative roofs. By combining all of the ways roofing can contribute to sustainable construction, RoofPoint provides building owners and designers a comprehensive tool for better roofing decisions leading to increased energy efficiency and reduced environmental impact. Currently, RoofPoint is being implemented in a pilot program sponsored by the member companies of the Center; and we plan on releasing a more robust public version of the RoofPoint program by the end of 2011.
The trend toward increasing complexity in sustainable roof design will require greater sophistication on the part of the roofing professional. But that doesn’t mean the individual roofing contractor needs to become an expert in every new technology. In fact, the winning contractor in this year’s Excellence in Design Award wasn’t necessarily an expert in all of the sophisticated technologies used on the roof - but he had built a network of connections that allowed him to be part of a team working together to provide the right solution for the client. So one of the secrets to “green” profits is relationship building: finding the right people to work with to give the customer what he’s looking for.
And just as important as networking is “walking the sustainable talk.” Contractors successful in making roofs sustainable are also successful in making their business operations sustainable. It’s hard to talk about energy savings on the roof unless you have an energy efficiency plan for your company’s vehicles and equipment. And it’s hard to be taken seriously about sustainable materials unless you have a company waste management and recycling plan.
Jim Hoff is Research Director for the Center for Environmental Innovation in Roofing. For more information, visit www.roofingcenter.com.
How Do You Replace Yourself? by Kevin KennedyThe biggest problem for contractors who hope to exit their business in the next decade is that owners do not realize how much time it takes to exit their business with a management buyout, which is the most common transfer in the contracting industry. The usual period for a completed transfer is from seven to twelve years.
Time is your biggest friend when you are exiting. Planning fifteen to twenty years out is ideal. This gives the exit planner time to plan for replacement income inside the business where it is deductible to the company and tax deferred to the owner. It also allows the planner time to structure the process for the most tax efficient transfer. Most owners are coming to us three to five years before they are ready to begin the exit, which is achievable but limits our creative options for tax efficiency and income replacement. Exit planning is about replacing your income so you can retire comfortably. The next biggest challenge is about replacing yourself, which is succession planning. Time again is your biggest friend. Simply, it is about taking your key managers to a higher level of competency, sharing a common vision and moving into leadership. Our program can put them through a formalized process that takes around five years, but leadership is a process that never ends. The new team and CEO will have to go through their bumps, bruises and wounds before they mature into leaders under your mentoring. To maximize the value of your company:
- Systemize the operations so everything is a measurable process.
- Clean up the books and get a certified audit.
- Build the management team to a level where you can take a month’s vacation.
- Replace yourself with a formalized succession plan.
- Develop an exit plan and understand the tax implications so you can save millions in the process as I’ve outlined below.
Remember, less is more.
Now this is counterintuitive, so listen. Let’s say the company is valued at $6 million dollars.
- When you sell the company to your management you are paying double taxes. The first layer of taxation consists of payroll and income taxes that can equate to an effective tax rate equal to 50 percent. The second layer of taxation occurs when the stock is sold. This transaction will incur a gain to be taxed at 15 percent. This rate was recently extended for 2 more years, plus your state tax.
- Strategy: Let’s avoid the double taxation and move to a single deductible tax.
- Recapitalize your common stock in to 1 percent voting stock (you own) and 99 percent non-voting stock (you sell/transfer). You control everything like Sam Walton of Walmart did with his company transfer.
- Lower the value of you company through appropriate discounts say around $3 million or $4 million.
- How is less going to be more? Form a special legal trust that transfers the non-voting stock tax free for income tax purposes. It saves around $800,000 for every dollar in stock price. Remember, the company pays for everything
- Now since you control the company with 1 of the voting stock, you can pay yourself directly by the company. It’s taxed once to the owner and fully deductible to the business. You can create a deferred compensation program
- This will save you and the company millions so you can buy yourself out. There are many variations of this strategy that match your goals and circumstances. Remember: It is not how much you make; it is how much you keep.
Note: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. Federal tax advice contained in this communication, unless otherwise specifically stated, was not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any matters addressed herein.
Kevin Kennedy is CEO of Beacon Exit Planning, LLC. For more information, visit www.beaconexitplanning.com.
Expand Your Offerings by Michael SchwarzWith new construction remaining sluggish and remodeling activity being limited by high unemployment and tight credit availability, contractors need to continue to expand the range of product categories and services they offer to their customers.
The focus on energy savings and government-sponsored incentives to drive investment in energy-saving products will remain important to the industry in 2011, though some of the incentives that were available over the last two years have expired and many will not be renewed. To date, these incentives have primarily focused on the areas of re-insulation and window replacement, but additional incentives are being considered and the criteria for products that meet current incentives may change.
The shift to green products and practices will continue, including shingles and low-slope products in cool colors, metal roofing, and an increased emphasis on recycling residential tear-off waste. It also looks like new solar roofing products will hit the market in 2011, but their impact likely won’t be felt immediately.
Recently there has been commodity price pressure for metals and asphalt, as well as supply limitations. This may create an environment of rising product and transportation costs, but it remains to be seen what effect this pressure will have on prices in 2011.
Contractors who can differentiate themselves by offering a broader range of products and services will be better positioned to land add-on sales and develop long-term repeat customers. Examples of that would include expanding into metal roofing, gutters, siding and windows.
As always, we suggest that contractors take advantage of the many training programs provided by distributors and manufacturers. It can really help them build their product and installation knowledge and further develop their selling skills, as well as open the door to opportunities for additional revenue.
Homeowners and building owners have more choices than ever before, so it is important for contractors to find ways to set themselves apart in the marketplace. Other than offering “good,” “better” and “best” product and service options, it is important for contractors to make it easy for their customers to understand the different designer accessory choices and energy-saving accessory items available to them. Many of these options are not overly expensive to customers and can add significant profit to the overall job.
Michael Schwarz is Director of Marketing & Business Intelligence for ABC Supply Co. Inc. For more information, visit www.abcsupply.com.
The Challenge Is the Economy by Jim OlsztynskiThe economy obviously has to be considered the biggest challenge right now and for the foreseeable future, especially with regard to new home construction. Home building is in the worst slump of our lifetimes and most analysts think it will be years before housing starts return to an annual rate of 1.5-1.6 million nationwide, which used to be regarded as a “normal” year in terms of what was needed to keep pace with market demand from new household formations, replacement housing and second homes.
In 2009 and 2010 housing limped along at barely a third of that level. That’s around a million roofing projects a year removed from the market. Even in the best of times commercial construction wouldn’t come close to taking up that slack, and these are far from the best of times for commercial construction either.
Roofing contractors that specialize in repair and renovation work aren’t spared the impact from the housing collapse. When home construction slumps, many companies that traditionally do new construction work start chasing R&R. This drives down bid prices and profits for companies that always targeted that market sector.
More than ever contractors need to break from the pack and differentiate themselves from everyone else with something beyond a low bid price. They need to turn attention to marketing themselves. That doesn’t necessarily mean spending a lot of money on advertising. It does mean promoting their firms through no-cost and low-cost “guerilla marketing” activities such as cultivating referrals, b-to-b networking, lending support to community and charitable activities, etc.
If there’s a silver lining in the lousy economy, it’s that a lot of talented people are looking for work or a better job. Many roofing contractors are so wrapped up in laying off staff they overlook the fact that this is also an opportunity to pick up top-notch employees, both blue and white collar, that they may not have had access to or been able to afford in the past.
Jim Olsztynski is Editor of Supply House Times and Editorial Director of Plumbing & Mechanical. He can be reached at firstname.lastname@example.org.
Fight Doom and Gloom by Rod MenzelThe overall economy has impacted both revenues and margin to some extent. I guess the bottom line is instead of installing a high-end roof, we may only install a small repair. However, these “small repair” relationships will eventually turn into complete jobs, assuming they had a positive experience.
Customers have tightened up, friends have tightened up, and neighbors have tightened up. If you hang around them long enough and take on a “doom and gloom” view, it will impact your revenues. Instead, take a walk. I went for a walk the other day and saw a facility manager of the building next door on the roof with an HVAC contractor. I shouted up to him to get his attention and he quickly told me he was “holding off on the roof till next year.” So I asked him about his current leaks and told him he should at least let us take care of those. Well, it ended up being a nice, profitable all-day repair. The moral of the story: Don’t sit there wallowing in the “doom and gloom,” take a walk - you never know what you’ll run into.
Here’s how our company has changed to cope with these conditions:
• We have adopted the mantra, “Keep the faith, persevere, and give it time to work.”
• We increased our leads through search engine optimization, door-to-door canvassing and advertising in our local newspaper.
• We determined that all we really need is an extra couple of re-roofs per month for us to have a decent 2011, compared to 2010.
• We vowed to continue to stand out from the rest of the local economy as a business that believes in service and wants to take excellent care of its customers.
Rod Menzel is President of GreatWay Roofing, Camarillo, Calif. For more information, visit www.greatwayroofing.com.
Gain Market Share by Timothy M. DunlapDue to the economy, it has been increasingly difficult to secure roofing projects. There is an increase in the competitiveness on roofing projects with contractors bidding on a much smaller pool of jobs. Many contractors are willing to accept tighter profit margins and lower prices just to keep their crews working.
While the overall economy and competitiveness have impacted our business, we have gained market share through our service initiatives, National Account program, green roofing programs and commercial flooring division featuring the DiamondQuest floor polishing system.
To combat the economic problems, we have concentrated on better management of projects in the field. Through increased training, we have improved efficiencies in project management. In becoming more selective with our roofing jobs, we have ultimately maximized profits.
Timothy M. Dunlap is President and Chief Operating Officer of CentiMark Corporation, Canonsburg, Pa. For more information, visit www.centimark.com.
Leadership Is Crucial by David HarrisonMy contractor clients share that their biggest problems are a combination of a weak economy, a glut of inferior roofing contractors and the lack of a plan and implementation approach to get them through these challenges. Buyers are different than they were just a few years ago.
Contractors think that they are more price conscious and are reacting by lowering their price. The reality is that buyers have become more value conscious but share this through price questions. At the end of the day, the only reason a property owner would pay one penny more for one contractor versus another is if they understand the problems and risks in their decision in choosing the contractor, the product system being used and the warranty coverage. This requires communication excellence - a capacity most contractors lack.
Contractors can cope with the lagging economy through leadership. If you look at the history of great leaders, they never surface during good times, but actually surface in bad times. Think of George Washington, Lee Iacocca, etc. and you’ll observe some things that they have in common. First, they understand the importance of great communication both internally and externally - that communication must answer the question “WIIFM” (what’s in it for me?). Second, they understand the importance of a thorough plan, communicating that plan and delegating responsibility to execute that plan. Third, they underwstand the importance of making everybody understand their importance. And to address their importance, that means understanding their issues and concerns, and just focusing on helping. In conclusion, the best way to survive and thrive in a lagging economy is to challenge yourself through others, plan, and focus to become a great communicator.
David Harrison is President of Harrison Management Consultants. He can be reached at email@example.com.