2014 State of the Industry Report: Defining Challenges
Contractors Brace Themselves for Key Problems in the Year Ahead
|State of the Industry Reports|
As our State of the Industry survey makes clear, there are a number of important challenges currently facing the roofing industry. We asked industry experts to single out what they feel are the most critical obstacles in the year ahead and share their advice on overcoming them. Most commentators focused on the economy, the labor market, increased competition and governmental regulations as key areas of concern.
The Weak Economy
Timothy M. Dunlap, president and chief operating officer for CentiMark Corp., singled out the uncertain economy as the biggest problem facing contractors in 2014. “If the economy improves, then all of us are likely to share in more business and increased profit margins. If the economy is weak, then the customer focus will be placed on service and repair work,” he said. “Being prepared to handle either situation is critical.”
“At CentiMark, we have taken a conservative approach and have focused on ways to increase our service business,” he continued. “By working to improve the customer’s experience specific to the ordering and tracking of repair and preventative maintenance work, we have grown this segment of our business dramatically. We have accomplished this with the use of several electronic platforms that allow customers a variety of ways to request, track and be notified of service work from laptop, smart phone or iPhone.”
Karen Vines: Help Your Employees Understand Health Care Reform and Reap the Benefits
The massive structure and multi-year implementation of the Affordable Care Act can present frustrating challenges for employers. Information is coming from a variety of sources and often carries a political overtone, so it can be difficult to sift through the rhetoric and determine what is accurate and what it really means for you as business owners.
Tackling the complexities of the reform act from the employer’s perspective is vastly different than looking at reform through your employees’ viewpoint. Whatever your view may be on the health care reform law, helping employees understand how the reform act impacts them will have positive benefits for your organization.
Focused strategic resource relationships are an investment that can reap significant rewards. Most employers are recognizing that the days of relying solely on the health insurance company or a similar resource to ensure the proper pathway of understanding and compliance are behind us. Insurance brokers and consultants that have purposely made the investment in providing compliance advisory services are invaluable strategic partnerships that can bring the reform act’s complexities into focus for your employees while helping your business navigate the practical application.
Karen D. Vines is vice president of employee benefits governance and compliance for IMA Inc.
Bill Baley, president of C.I. Services Inc., agrees. In an era of uncertainty, contractors have to brace for the worst as they hope for the best. “I think contractors should prepare for another downturn in the roofing market,” he said. “The ‘second bubble’ we have been hearing about may be closer than we think. If that happens, contractors should be ready to scale back as needed. I would recommend getting your service and maintenance departments in order and marketing those services. Also, finding good short-term labor will also be tough, as the guys with decent jobs will not be leaving them if things get a bit tougher.”
Lack of Qualified Labor
J. Patrick Fick, president of Fick Bros. Roofing & Exterior Remodeling Co., the Roofing Contractor 2013 Residential Roofing Contractor of the Year, pointed to the labor market as his greatest area of concern. “I think one of the toughest problems facing contractors in 2014 is hiring qualified employees that fit into an organization’s framework for standards and excellence,” said Fick. “I think it is becoming harder and harder to find great people in all areas of the business, but I do think they are out there. The second part to the equation — after you find or train a roofer — is making sure he is motivated to succeed and adheres to the quality standards that you expect.”
Fick believes contractors should begin to cope with the dwindling number of skilled craftsmen by developing their own training programs. “At Fick Bros., we built a 600-square-foot training center inside of our warehouse that we can use on rainy days to train our apprentices,” he said. “The training facility has a dormer, two brick chimneys, a flat roof section, a brick side wall, vent pipes and a built-in-gutter. This gives us the opportunity to train on most of the details a mechanic would see on an everyday basis. The apprentices can learn on bad weather days so they can move up the ranks faster, and they also get paid for participating in the training.”
“The toughest challenge we see today is the lack of manpower,” said Dave Schupmann, senior vice president of sales and marketing for Tecta America Corp. “In most of our markets today we are struggling to find salespeople with technical roofing knowledge, experienced foremen and project managers, and most of all qualified field labor. In addition to installation knowledge, qualified also means workers that can pass today’s background check and E-Verification standards. It is more important than ever to always have a strong recruitment programs, referral programs and training programs with your company. In addition, it is important to perform ongoing outreach programs with high schools, colleges and trade schools to create sources for employees.”
Christian Madsen, president, Madsen Roofing & Waterproofing Inc., cited uncertainty in labor and labor-related costs as his greatest concerns. “Because there does not appear to be any path to increasing the labor pool, this will continue to be a challenge for the foreseeable future,” he said. “Contractors will have to resist the temptation to lower their hiring standards in order to fill out their crews. Employing marginal workers without adequate skills is a recipe for safety and liability disasters that simply is not justified by short-term gains in backlog reduction. Our work is only as good as the roofers who install it.”
Keith Post, CEO of KPost Company, urged contractors to renew their focus on recruiting. “I strongly believe the toughest problem we face is workforce development between immigration reform and recruiting competition with GCs and the shortage of college grads,” he said. “We cannot be passive about either of these; therefore commission your current employees to help you recruit new employees. Engage your company in local college and association activity, and brand your company culture in your marketing. While doing this, do not forget to take care of your current team because retaining good employees is 95 percent of building a great company.”
Jack Scalo, president and CEO, Burns & Scalo Roofing Inc., pointed to a shortage of qualified tradespersons as the key issue affecting not only the roofing industry but the entire U.S. economy. “To help overcome this challenge, we are retooling our recruitment and training initiatives to find qualified candidates with the aptitude to succeed at our company,” he said. “It doesn’t stop at recruitment. Once a part of our organization, we are investing in employees by creating meaningful training programs to develop their job skills and provide a runway for them to grow.”
Burns & Scalo has explored new ways to locate qualified job applicants. “To help grow our workforce, we have made strategic partnerships with several organizations and trade schools currently developing individuals for a career in construction,” he said. “Our efforts have expanded beyond recruitment to include the development of roofing-specific curriculum to better prepare candidates for the roofing industry. These initiatives have proved to be an excellent source for qualified applicants who are ready to launch a long-lasting career in the roofing industry.”
Scalo noted the company has also implemented veteran recruitment programs to help transition returning military personnel into the civilian workforce. “Burns & Scalo offers veterans the opportunity to enroll in our GI Bill Approved Apprentice Program,” he said. “This comprehensive program combines on-the-job learning with valuable job-related education. At Burns & Scalo, we feel that it is our duty to help provide meaningful employment and develop long-lasting careers for those who have sacrificed so much for our country.”
Brett Hall, president of Joe Hall Roofing Inc., pointed to increased competition from unscrupulous contractors as the most important challenge facing the industry. “It still seems a new roofing company is sprouting up on every corner,” he said. “Let’s face it; there is a difference between an established company with employees, building, insurance etc. These ‘competitors’ with low to no overhead are driving margins down, not to mention quality. The Internet can make a ‘startup’ company look like a mirage for consumers.”
Timothy C. Hershey, president and owner of Thoroughbred Contractors, believes contractors who play by the rules and have a good handle on expenses face a tough task in today’s economy. “They know that there is a definitive difference between price and value, and have to fight tooth and nail every day to want to provide that value,” he said. “Low numbers and poor workmanship hurts everyone in the business, starting with the person who pays the bills — the client — then the manufacturers, the distributors and finally the contractors. We should all try to be different, distinctive, special, unique and advantageous; it will not and cannot be done by being the ‘low guy.’”
Dave O’Donnell, president and CEO of NEMEON Inc., agrees that competing on price is a losing proposition. “The toughest problem contractors will face in the coming year is not getting caught up in the price game,” he said. “A contractor should be well versed and able to explain why their company is best for the job. Don’t get caught up in adjusting pricing because you are not the lowest bid for a particular job. There are many variables that go into doing a quality job, and educating the decision maker goes a lot farther that lowering your price.”
Kevin Kennedy: Retiring Someday? Set Up a Long-Term Strategy
During the past five years of dealing with business owners and assisting with their planning, Beacon has been witness to several recurring observations. Many of these observations occurred throughout the country and were evident in businesses ranging from $4 million to more than $90 million in revenue:
It must be noted that exit planning does not simply revolve around the transaction of monetizing the business value that is trapped in a business. Exit planning should start much sooner by implementing annual tax-saving strategies, maximizing your savings outside the business and protecting this valuable asset from creditors, key employee departures and other nuisances that can detract value from your wealth.
Further, most owners still cannot differentiate between exit and succession planning. In the simplest terms:
An exit plan provides a customized written plan that monetizes the business, meets the owner’s financial goals, protects his or her wealth and moves the owner into the next stage of life.
A succession plan provides a customized written plan that focuses on the human side of the business. Succession replaces the owner by moving the chosen performers to a professional level of management and into leadership. This requires time, training and stretching the team.
Kevin Kennedy is the founder and CEO of Beacon Exit Planning LLC and Beacon Merger & Acquisitions Advisors LLC.
Martin Grohman, executive director of sustainability at GAF, maintains that differentiating your business from the competition is essential in today’s market. “Making your customer into an expert can be a great opportunity to make it clear that what you’re offering is a long-term solution that will improve the building in multiple ways, help save energy and just make life easier as a facility manager,” he said. “It means they have less explaining to do to their customers about why the building isn’t working like it should. So property owners aren’t looking for a sales pitch as much as they used to. Instead, they want insights, based on your specialized knowledge, on how to make sensible decisions for their facility.”
Codes and Regulations
Increased governmental regulation was the most pressing problem cited by several contractors, including Dennis Ryan, president of Waterproofing Associates Inc. and president of the Western States Roofing Contractors Association (WSRCA). “Codes, codes, regulations and more regulations — they just keep coming,” he said. “Contractors need to stay informed, or get informed, regarding the ever-changing and expanding codes and regulations that we are faced with, in what seems to be on a regular basis. Continuing to educate yourself and the people that you work with is crucial. Reading the various roofing magazines, participating in webinars, attending educational seminars, having memberships in associations that provide technical articles, industry issues and technical bulletins will help contractors keep up. Associations provide information that help keep contractors up to date as well. Attending industry conventions that provide an array of information in a condensed time frame has helped us many times in the past. All of the above are things we will continue to utilize. Keeping up with what’s happening in the industry by way of education is an important part of running an effective roofing and waterproofing contracting business.”
Steve Little, president of KPost Company and president of the Midwest Roofing Contractors Association (MRCA), agrees. “One problem is too much government intervention and regulatory issues,” he said. “Supporting your local, state and national political action committees (PACs) and associations while better managing your business to avoid noncompliance of current regulations will reduce your risk of exposure.”
Little also pointed to another interrelated issue — minimizing legal and insurance exposure. “Another problem is contractors truly prioritizing the ‘risk management’ of their companies,” he said. “Client contracts, applicator agreements, employee employment contracts, and managing company and owner succession processes are serious risk management items that most contractors pay little attention to, yet in this litigious world we live in, these are becoming more important than the installation of the roof system.”
Dan Piché, vice president of national business development for ABC Supply Co., Inc., said, “The introduction of the Affordable Care Act will place more financial obligations on top of the increased demands from the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA), the Department of Transportation (DOT) and the United States Environmental Protection Agency (EPA). Staying on top of these ever-changing requirements will be critical for all business owners.”
Monroe Porter, president of PROOF Management Consultants, warned contractors to be careful about IRS rules. “For the residential market, contractors must be careful regarding their use of subcontractors and following IRS guidelines,” he said. “Many areas of the country find roofing contractors using subs who really look and act more like employees. With the government hiring more investigators and keeping accurate records, following the law is a must. Adopting an attitude of ‘well everyone else does it’ can be dangerous. If it looks like a duck, quacks like a duck and walks like a duck, well, it’s a duck. Google IRS subcontractor rules and take steps to ensure you comply.”
Chris Salazar, chief operating officer, Karnak Corp., pointed to the effort required to keep up with the “regulatory information overload.” “Regulations and roof requirements are becoming overwhelming for contractors,” he said. “Partnering up with a national manufacturer of roof coatings experienced in all markets should make it easier for contractors to concentrate on growing their business and providing great service to their customers.”
Salazar urged contractors to keep an eye on VOC regulations. “VOC regulations can have negative effects when they are pushed through before manufacturing technology is able to catch up with them. I am confident that whatever issues crop up as a result of new technologies will be resolved by the industry. However, I caution everyone to use common sense. A chain is only as strong as its weakest link. Keep that in mind when utilizing adhesives.”
Nelson Braddy, CEO of King of Texas Roofing Company L.P., pointed to the Affordable Care Act as the most baffling of the many governmental initiatives affecting his business. “The greatest challenge we have as contractors is dealing with the uncertainty caused by laws and edicts emanating in Washington,” Braddy said. “No one knows what to do with the Affordable Care Act. The costs of the new law are devastating to contractors. My company’s renewal was up 51 percent and we received the quote eight days before the policy expired. Regulations coming from OSHA, the EPA and Department of Labor are coming so fast you cannot keep up with them. We are a commercial contractor, and many times it can be three to six months between the time we bid a project and the time we start work. In that time frame, our cost structure can be completely altered by the unanticipated cost of meeting the new regulations. How do we deal with it? The only prudent thing is to add contingency costs to your bids, but that can make you uncompetitive at times.”
Richard Spanton Jr., founder and CEO of Mastercraft Exteriors, AccuLynx.com and Storm Solutions, also singled out the ACA. “It will be tough for many to navigate this new and confusing system, which could lead to many either not complying or making mistakes out of ignorance. My advice would be to locate a competent health insurance provider that is well versed in the policies and procedures companies need to follow.”
Larry Marshall, the president of L. Marshall Roofing and Sheet Metal Inc., the Roofing Contractor 2013 Commercial Roofing Contractor of the Year, pointed to the importance of government work and posed a scenario for contractors to consider. “Imagine what the economy would look like in 2014 if the government decides not to go forward with the stimulus investments,” he said. “The loss of public projects would be an overwhelming disaster in the roofing-construction business. The message to the contractors has to be to remember that all politics are local, and to ensure that our federal, state and local governments continue to invest in infrastructure. It is important that we all collectively contact our local representatives and let them know how vital that stimulus investment is to our companies and the overall economy.”
Some Parting Advice
Jay Thomas, vice president of marketing for Sika Corporation, urged contractors to look at the big picture. “The most important challenge is positioning your company for the long-term trends in the market while still achieving profitable growth in the short term,” Thomas said. “The speed of technology change is driving improvements in efficiency at an unprecedented pace. Contractors may not notice it in their businesses today, but it is definitely affecting their owner customers. Their customers are being forced to become more efficient to maintain profitability, and they will drive that requirement to their vendors. Contractors need to make an effort to be aware of technologies that can change the dynamics in the roofing business and invest a portion of their time to learn how they could use them as a competitive advantage. If they don’t, then they eventually will be competing at a disadvantage against those that do.”
Randy Adams, CEO of R. Adams Roofing Inc., advised roofing contractors to play to their strengths. “We are beginning to see a little life return to the economy,” he said. “However, roofing contractors today need to be strategic in identifying their strengths and focusing their efforts to maximize their opportunities in the marketplace. By focusing on what we do well, pursuing our strengths, branding who we are through our marketing efforts, roofing contractors can position themselves for success. The Great Recession has reminded all of us of the fundamental practices necessary to be successful. Customer service has to be exemplary; quick turnaround times for estimates are critical; and fast, consistent, quality installations are important to our customers. My suggestions for 2014 are to take a good look under the ‘business hood’ internally, understand who we are, make jobsite safety a priority, and then pursue our goals in the marketplace.”
Monroe Porter, president of PROOF Management Consultants, put it all in perspective. “After doing this for 25 years, more things stay the same than change,” he said. “Contractors are risk takers. They bet each and every day that it won’t rain, that Mrs. Jones isn’t crazy and will be easy to work with, and that the general contractor will pay them. It just seems that things move a little faster and they can get into trouble even quicker.”