Tuesday, December 1, 2009
Evidently, a contractor’s reputation is at risk even when he does everything right (short of reading the customer’s mind). Klemons, who sold his company in 2007, was Chairman of the Charlotte Better Business Bureau. He was the 2005 recipient of the Charlotte Ethics in Business Award after receiving Honorable Mention the previous year. The Charlotte chapter of NARI, of which Klemons is a charter member, gives an annual award in his name. He’s a multiple Chrysalis award winner, and is a Remodeling Magazine Big 50 Remodeler. In addition to numerous professional awards, Barry’s civic contributions are widely recognized and lauded.
And Mrs. Smith just assumed that he wouldn’t stand behind his work.
Clearly, the public has a generic perception of contractors as unethical. The 2008 Consumer Complaint Survey, published this July, ranked home improvement/construction #2 on its Top Ten Complaints list; and our industry has had the distinction of being ranked in the top three for many years. This perception and the reality causing it places remodelers in a defensive posture before they even show up for the estimate (actually, not showing up for the estimate has become folklore, contributing to the negative stereotype).
Ironically, the customer is frequently an enabler for the problems he complains about. Not to blame the victim here, but isn’t it odd that people will allow – nay, pursue – the lowest bidder to lay hands on what is probably their single biggest asset? The 19th century author John Ruskin said, “The common law of business balance prohibits paying a little and getting a lot. It can't be done.” Yet every day, homeowners effectively conspire with those contractors who are willing to work cheaply to produce an unsatisfactory outcome for both parties. Of course, the reputation of the entire remodeling industry erodes just a little more each time this occurs. And the Mrs. Smiths of the world just assume…
The math is simple, then: The most ethical behavior is to charge more! Or to charge enough to deliver what you promise; and that should never come at the lowest price. Unfortunately, the people who need to learn that lesson probably aren’t reading this column.
Wednesday, November 18, 2009
Lawson recalled his first job as an industrial fire fighter for American Cyanamid in Louisiana. Not long after starting work, he experienced his first emergency – an employee was exposed to Class A poisons. The employee had been sampling process materials as part of a standard procedure performed every two hours, and had succumbed after inhaling a large amount of hydrocyanic acid gas that had leaked through a pump seal. It was not a pretty sight. By the time Dennis’ team arrived, the employee was unconscious; he had turned blue because the chemical compound was replacing the oxygen in his blood, and he had defecated in his pants. While Dennis hosed down the pump equipment to disperse the leaking gas, the shift supervisor administered CPR and first aid to revive the employee. He was then admitted to the hospital for observation. The man had come close to death, but fortunately did not suffer long-term damage. The trauma was so severe, though, that he threw up for a long time afterward, Dennis recalls.
While relieved that the employee had survived, Lawson found that he couldn’t sleep that night after his shift. The experience had made a profound impression on him, one that has lasted his entire career: Even in the face of the gravest situation, the proper response can save a person’s life. He had experienced first-hand the value of working in an environment with well-established procedures. In this case the SOP was to have a watcher/buddy nearby wearing a self-contained breathing apparatus to quickly call for help when the worst happened.
In the restoration business, everyday hazards may not be as dramatic as clouds of poisonous gas. But the restoration work environment can pose risks not found in a static manufacturing environment. Because the work site changes continuously, lack of familiarity with each location’s potential dangers alters how those risks are monitored and avoided. Procedures must not only include carefully defined tasks, but should also emphasize the less tangible skill of situational awareness. This requires a commitment on the part of the employee – an attitude of caring and vigilance.
What does it take to get employees to acquire the right attitude about safety so they can anticipate and avoid hazards? Certainly the experience of an emotionally powerful event – the sight and smell of a dying co-worker – imprinted an unforgettable image in Dennis Lawson’s mind and influenced his approach to every position since. But you can’t wait for a harrowing near-miss situation to motivate the rank and file, and you certainly don’t want to orchestrate one just to make safety training more effective!
While it would be nice if all your employees would memorize OSHA 29 CFR 1926.850(b) (Subpart T), plus the other 10,000 provisions in OSHA’s Construction Industry Regulations, the reality is that many feel invincible and view safety training as enthusiastically as they did high school homework. This is especially so if their training is about rules and regulations rather than behavior and culture. The result is a lack of caring – of carelessness – that increases the likelihood of injury and therefore the effort necessary to prevent it.
It is said that behavior influences attitude and attitude influences behavior. One of the most effective means of influencing both is through peer pressure, or validation. (Most youngsters probably wouldn’t try smoking otherwise.) Since perception of motives affects a person’s openness to a message, it matters who is delivering that message. Because of this, a rank and file employee can often be more successful influencing fellow employees than a manager. Those who demonstrate interest and aptitude with safety procedures should be recognized and used as models for desired behavior. Any employees who have personal experience, whether from a near-miss or actual injury to themselves or a co-worker, should be encouraged to share that with the group. Individuals from outside the company who have suffered serious, even disabling, workplace injuries can be recruited to speak at your safety meetings. As happened with Dennis Lawson, the more intense the emotions associated with any experience, the more likely you are to remember and care about it in the future. To help achieve the strongest emotional impact on your employees, ask your presenters to explain in detail how the injury has affected their lives. The more dramatic the message, the more potential there is for a breakthrough in attitude.
As an advocate of behavior-based safety, it is this kind of people-centered approach to management that Lawson has developed. With years of experience, a psychology degree earned over a 20-year period, and four decades of study in the art of karate-do, he feels that Royal Plus is the place where he’s finally able to use all of his talents. Lawson articulated his philosophy with a simple, but profound lesson from the revered master of Okinawan karate, Gichin Funakoshi. He said, “Carelessness comes before accidents.”
Friday, October 30, 2009
When Mr. Smith was confronted, he defended his actions by claiming that he owned the materials because they were delivered to his house for his deck. No amount of argument could unwind Mr. Smith’s rationalization, so Mike decided just to let it go. But he made an angry mental note to add a clause to his contract putting in black and white what reasonable people would take for granted.
How many painful lessons like this have you learned on the job? Have you ever had a customer refuse you access to his house electricity, or try to get one of your employees to do side work? What if you discover a rotted band board after you strip the siding off, or hit an underground tank while drilling a footing hole? Ever had a customer give you a new punch list every time you complete the last? The list goes on. If you’ve been in the contracting business for more than a few years you’ve encountered a host of unforeseen situations that have cost you time, or money, or your customer’s goodwill… or all three.
Knowing that, I’m amazed to see how many contractors still use the same old generic proposal form from the stationery store. Last year I had a new furnace installed, and the two-man HVAC contractor gave me one of these proposal forms as the contract. It didn’t meet state licensing requirements much less deal with the kinds of issues described above.
Because I’m an eminently fair-minded person (with a deep sympathy for the travails of contractors), I didn’t cause any problems for these young guys and would’ve dealt fairly with them had there been problems with their work. But life’s too short to count on dealing with nice guys all the time. It only takes one bad apple to put a well-meaning but naïve contractor out of business.
If it’s too much effort or cost to develop a custom contract for your business that anticipates and resolves conflicts caused by recurring problems, why isn’t it too much effort or cost to deal with the rump end afterwards? Talk about whistling past the graveyard! If you haven’t done so already, sit down and think about the bad times; what could you have done to avoid them? If having prophylactic language in your contract would’ve helped – write yourself a fresh new contract before the season ramps up next year.
Friday, October 2, 2009
Everyone in the remodeling industry knows that much of the work you do presents a risk of injury… and even death. And hopefully you know that all employers are required by OSHA to provide employees with a safe working environment. You may also know that there are 22 states (incl. Puerto Rico) that have state OSHA plans that you must follow (rather than federal) if you work in one of those states.
Did you know that each state has OSHA consultation services? This is different from OSHA’s enforcement division, which is administered by either the state or the federal government, depending on whether or not you’re in a state plan state. The Office of Consultation Services exists to educate employers and employees. They will perform site inspections by invitation only, and keep the results confidential. Small companies in high-risk industries (such as remodeling contractors) are given priority, and the service is provided for free. According to OSHA, “employers can find out about potential hazards at their worksites, improve their occupational safety and health management systems, and even qualify for a one-year exemption from routine OSHA inspections.”
On the other hand, the enforcement division makes unannounced inspections, and is the entity that will penalize you if you’re found in non-compliance. There are two types of inspections. One is a “focused” inspection, which looks at only a limited number of conditions for compliance, such as fall hazards, electric hazards, personal protection, and so on. The enforcement division may do this kind of inspection, but will also perform a “wall-to-wall,” which should be self-explanatory.
Many of you are paper contractors, so what is your obligation to comply with OSHA regulations? To quote: “You will be responsible for doing your best to ensure that your subcontractor complies with OSHA.” In other words, if your sub is not in compliance, and you can’t prove that you’ve taken all reasonable steps to make the sub comply (short of throwing him off the job), you will be held responsible.
This means that you will have to require the sub to
- Wear the appropriate protective gear (hard hat, eye protection, appropriate clothing, etc.);
- Use the appropriate fall protection equipment if any work is 6 feet off the ground or higher;
- Use ground fault circuit interrupters on each extension cord;
- Have at least one of his employees trained in first aid techniques, and;
- Have in place a written safety training program and hazard communication program.
If your sub is not in compliance, you should notify him in writing that he must comply before you will allow him to complete the job. Of course, if you employ your workers, it’ll be your obligation to have these practices in place yourself.
With that said, I have never heard of an OSHA inspection on a residential remodeling project in over 20 years of experience with projects around the country. But the issue is not about the low probability of being caught violating some annoying regulations. Nor is it an economic issue. The issue is ensuring that the people who work on your projects do not get injured or killed. This is a value set that should be a part of every remodeler’s culture. It’s about doing the right thing.
Monday, August 31, 2009
My previous two columns explored several issues that developed while negotiating a deck installation program with a big-box home improvement chain. Hopefully by sharing these experiences, any readers who are considering a relationship with a big-box retailer will pick up a few ideas. By the end of my last column, I had outlined most of a relationship that would work for both parties; but there were just a few more items to discuss.
Warranty claims. Our franchisees would retain all obligations for their workmanship, but since most claims are for defects in materials – and the retailer would be supplier – we would need a crystal clear agreement on their obligations.
Ownership of intellectual property. Since our firm would be providing the designs, structural plans, takeoffs, pricing forms and artwork, we would retain ownership rights. This raised the question of what Big Box intended to do in areas where we did not have a franchise. One possibility would be for us to license the rights to use our materials to a local contractor until such time as we awarded a franchise in that area.
Labor rates. Given the variety of labor rates in different markets, our pricing would have to reflect local costs. This obviously isn’t an issue if your organization operates in a single market.
Other costs. There can be differences in requirements within a single metropolitan area. Beyond the building permits, some jobs may require a Dumpster, port-a-john, zoning and health department fees, and so on. The county where we had planned to pilot the program, for example, required a contractor to have a personal interview at the building department before a condo or townhouse deck project could even be sold. Having clear procedures for their salespeople to price in special requirements was critical.
Sales staff. Our company had previous experience working with a national retailer on a similar program where the store’s personnel were responsible for sales. The challenges we discovered were:
- Overpromising the performance/quality of the building material
- Promising additional features/work outside the scope of the designs and contract
- Inability to answer technical questions
- Mistakes in communicating design changes or special customer requests
To avoid these kinds of issues from occurring, we would have to develop and deliver appropriate policies and training; as well as procedures in case a salesperson’s representations created unexpected costs for us.
Material supply. We asked for the following standards of performance from the retailer:
- Timely delivery
- Accurate selection (we would fax or email computer-generated P.O.’s)
- Quality selection
- Excess materials/culls picked up & restocked
- Ability to accommodate written drop location instructions and special conditions
Given the difficulty of coordinating policy among multiple stores in a single market area, I proposed that one store in an area be the supplier; and that we facilitate a personal relationship between the franchisee and the manager of the lumber department.
After three stages of negotiation it became clear that my approach of describing the devil by its details was more than the installed sales manager had bargained for. It wasn’t long before I received a “thanks, but we’re going to use a local contractor for this program” letter. No surprise, because there will always be contractors willing to work for little more than the cost of their labor and who will deal with problems after they occur rather than beforehand. What we’ll never know is how successful the program could have been with a reliable, professional delivery partner that had an investment in the outcome.
Monday, July 27, 2009
But in my experience, very few customers want a cookie cutter solution – they want a custom design that considers the aesthetic, functional, site and budget variables unique to their situation. And given the probability of customers wanting something off-list and the tendency of salespeople to promise anything to avoid the hassle of solving a problem they aren’t equipped to solve… well, I probably don’t need to finish the sentence.
The biggest problem is the impact of design efficiency on cost, and hence prices. Given unlimited options, how could we teach the retailer’s salespeople enough about deck design and construction for them to accurately adjust the pricing as design changes alter design efficiencies?
In spite of my recommendation that the party best suited to design and sell the project was us – the contractor – the retailer insisted on pursuing their model. So if I wanted the opportunity to capture a new market segment for our franchisees, I should come up with a solution. This is a rough summary of my proposal:
Platforms. Each pre-designed deck in the catalogue must be offered at a minimum size/cost, so the only change option would be a size increase, and I would be able to provide square foot pricing for that. Additional options requiring variable pricing were decking material (PT vs. composite), decking direction (parallel vs. diagonal, or w/parting board), fasteners (screws [stainless or galvanized], nails, or staples), site access, elevation, attached to the house or freestanding, and so on.
Railings. While the price could be increased or decreased on a linear foot basis, there would be a minimum price (the most-stringent local code may not require railings around a platform up to 30” elevation, but would require them on our minimum-size stairs – see below – since they had more than two risers). The style of the railing also affected the labor rate (standard picket railings are more efficient to build than Chippendale railings).
Stairs. Stairs would also have to have a minimum cost based on a minimum size (three risers/two treads). Additional stairs would be priced on a per-tread basis. For some reason that still escapes me, many customers love flared stairs. So in spite of their much higher price due to the much lower efficiency to build, I felt obliged to provide them as an option. Also, the height of the stairs introduced additional design/cost variables (no flared stairs above eight risers, landings on long runs, etc.).
Other variables that would have to be considered in the final pricing schedule were: Designing around existing site conditions (a tree through the deck, for instance), demolition, architectural review, accessories, and so on. I proposed to develop a pricing wizard to ensure that their sales personnel would cover all the key variables and price them to reflect local costs of materials and labor.
This column doesn’t do justice to the detail that I had to spell out in my proposal. But even after doing that, I had to raise another list of issues that would have to be addressed if we were to get this program off the ground. Next month I talk about “oh yeah, another couple of things…”
Thursday, July 2, 2009
There were a number of issues that came to mind as I considered the potential relationship. The most important was the concept of a labor-only relationship. From my point of view, that arrangement would remove most of the value my company added, relegating our service to a commodity. That concern was heightened when they asked us for a single square foot price – basically, take our labor cost and mark it up. And since the industry standard markup is 50%, it felt as though we were viewed as just a carpentry service, attractive mainly because we had a presence in 30 states.
So put yourself in this scenario and run the numbers to see how you would fare compared to the retailer: Assume that your labor cost for construction of a simple pressure-treated deck is $5.00/s.f. A 50% markup on the labor would produce a contribution to your company of $2.50/s.f., for a total labor charge to the retailer of $7.50/s.f. Also let’s assume that a simple P-T deck costs the customer $20.00/s.f. After deducting your labor cost and their material cost of around $5.00/s.f. (remember, they’re the supplier), the home improvement company would receive a gross margin of $7.50/s.f. or 37.5% of the selling price. Your $2.50 would be 12.5% of the selling price.
Skilled labor is a scarce resource, and should be utilized to produce the highest gross margin attainable relative to the market value of a project. For custom-designed, custom-built projects, this margin should be in the 40%-50% range. Proportionately, labor costs should be in the 20%-25% range. This means that when you deploy a “unit” of labor, the markup should be 160% to 200% in order to achieve the desired margin. As the labor-only provider in the example above, your markup was 50% instead of 160%-200%; your margin was 12.5% instead of 40%-50%.
Because of this I decided to propose a labor rate far above the industry norm – one that would generate a real-dollar contribution to overhead & profit comparable to that produced on a typical project; with a discount to allow for the fact that the marketing & advertising, design and sales costs would be covered by their company instead of being paid by us as below the line expenses.
However, we still had overhead for these functions, which would have to be covered by non-big box work. So given a choice, we would commit our construction crews to projects that produce the greatest return. But in slow times (economically or seasonally), choice may not exist. So this relationship might make sense if the big box retailer could provide a consistent book of business that would help make the workflow more predictable and cover the monthly nut.
This is just the first set of issues I faced when considering whether or not to provide installation services for a big retailer. Tune in next month for Part II: Can you have a single per-square-foot price for multiple designs installed in different site conditions?
Wednesday, June 3, 2009
So early one Saturday morning, Bill showed up at the customer’s house. Hoisting a chain saw out of the back of his pickup, he stalked to the back of the house and cranked it up. Mr. Jones bolted out of the back door in his robe and demanded to know what Bill was doing. “I’m taking my deck back,” Bill said. “You can’t do that, it’s my property!” screamed the man. “No,” Bill said, “it’s not your property until you’ve paid for it.” The customer threatened to call the police. “Go ahead, call the police. By the time they get here I’ll be done.” Bill’s look of angry determination and the idling chain saw in his hand convinced the customer that he’d be better off making the final payment. The check cleared, and Bill immediately rewrote the payment schedule and punch list policy in his contract.
No doubt many of you have been tempted to pull out the chainsaw with some of your customers. There is some small percentage of the general population that simply must lie, cheat and steal… perhaps because of an extra Y chromosome or some other kind of mental pathology. Some of those people become your customers. Some go into politics.
How many of you have fantasized about creating a “Better Customer Bureau,” to provide some balance to the numerous organizations and web sites dedicated to victimized consumers? Well, someone has finally risen to the challenge. An intrepid contractor in Florida and his daughter have created Business Beware (www.businessbeware.biz). About a year ago, Robert and Ashley Bodi created their website, dedicated to helping businesses deal with deadbeat customers. Registered members (only $5/year) can post customer names and locations, and the nature of their complaint. There are about 800 members – mostly, but not all contractors – who have collectively posted over a thousand complaints. In the interest of fairness, customers are provided with the opportunity to rebut the claims, but so far none have done so. This is probably due to the lack of widespread awareness of the site. They’re doing good work, folks. Why don’t you visit their site and join up? Hopefully, as membership and public recognition increases over time, Business Beware will become an influential force for truth, justice and the American way!
Thursday, May 7, 2009
In popular business jargon, each point of contact described in the first sentence above is a “stakeholder,” or someone who is in some way affected by your actions. It’s your job to manage the outcome of your actions on your stakeholders. The most obvious and important stakeholder is your customer. I won’t indulge in the argument that they’re all your customers, because that can become an exercise in semantics. The customer is the customer, period the end. So the $64,000 question is do you know who your customer is? If not, can you effectively manage the intangibles of those relationships for your mutual benefit? I would argue “no.”
In developing systems for use by over a hundred individual business owners – our franchisees – we surveyed our customers not only to understand key demographic criteria (household income, age, gender, occupation and education), but also to understand their reasons for purchasing and their satisfaction with both the finished project and their relationship with us. We developed a profile of a generic customer – specifically the person who would initiate the decision to purchase our service – and tailored all our marketing messages to appeal to that person. Our sales methodology evolved into a finely-tuned process designed to speak from that customer’s point of view. Recognition of who was our customer helped to shape the elements that defined our business, from the use of colors and images to behavior and language. You should seek understanding of your other stakeholders as well, especially your employees, if not quite to this level of thoroughness.
The key first step in the relationship-building process is to establish realistic expectations. While this is an absolute drop-dead must for dealings with your customers, it’s also critical in your dealings with your other stakeholders. Obviously, your success (or lack thereof) in establishing realistic expectations with your customers, employees, subcontractors, suppliers and government friends will determine the quality of the outcomes you achieve. Think of expectation-setting as the oil that lubricates the pistons in an engine. Without it, the engine will quickly overheat and seize up.
And it’s not just the measurable aspects of those expectations that need to be communicated (such as when the crews will show up, whom to call for a problem, when payments are due), it’s your company’s values – transparency, responsiveness, and quality of workmanship being just a few. When you’ve successfully communicated your expectations – and just as important, really heard what your stakeholders’ expectations are – you’ll have benchmarks that make it easier to handle the numerous predictable and unpredictable issues that percolate up regularly in all your business relationships. And you’ll have created the foundation for managing those critical elements of your business called “people.”
Saturday, January 31, 2009
And they’re right.
But that’s not what some would have us believe. Shortly after the conference I found a web site advertising a book that would teach contractors the SIX EASY STEPS to becoming an insurance restoration contractor, including how to achieve (a remarkably precise) 87.62% bid success rate, with HUGE PROFITS. BIG, FAT, WONDERFUL 20% to 40% PROFITS!
Hmm. A few of these “easy steps” remind me of the first half of comedian Steve Martin’s joke about how to become a millionaire and never pay taxes: “First… get a million dollars.”
“Easy” step #1 is to “Establish a relationship with the proper insurance company 'insider', known as an adjuster.” Well, fine. Go ahead and establish that relationship. But it helps to have knowledge of the special procedures unique to restoration work. “Easy” steps 2 through 6 are to analyze the damage (yes, maybe along with five other contractors), perform the repair cost analysis (do you know how to use the standard estimating software, Xactimate?), obtain an "approval of sheet" from the insurance adjuster (which I assume is an agreed scope and price), set up the contractual relationship (which now involve the interests of three parties), and then “proceed with the repairs.”
Let’s isolate just one of those “easy” steps. An insurance estimate is scoped and priced much differently than a remodeling job, and Xactimate requires special training to use. If you’re a participant in an insurer’s program, they will pay your cost based on Xactimate’s pre-set values + 10% markup (not margin) for your overhead + 10% for profit. Pause for laughter. Money is made in this business, to be sure. But could you make money in your business if you used that formula, literally? Well, there are ways, but those were the subject of ethics roundtable debates at the aforementioned RIA conference.
Now, perhaps I’m being cynical. Maybe it is easy to just dive into emergency response and restoration services for water, smoke, and fire damage. All you need are trained and certified technicians, and the capability of providing 24-hour response. Your staff will need to know how to deal with traumatized homeowners in the middle of a crisis. And they’ll want to use tools and equipment that are specially designed to perform the work required by the emergency – take water damage, for example: equipment that can dry a structure quickly; vacuum units and specialty extraction tools (for carpets and cushions); air movers and dehumidifiers; meters to test moisture content. And there are special procedures and documentation required to prove that the structure was dried properly and returned to a pre-loss condition that won’t promote mold growth.
But wait, there’s more! Other services include content inventory and pack-out, fire damage demolition, smoke mitigation, mold remediation, gray and black water mitigation, and even (shudder) trauma scene cleanup. With fire damage repair, for example, you have to do the correct amount of demolition. Too much and you’ll be doing work for which you won’t be paid. Too little and you could have odor and structural problems. Then you have to properly handle the fire odor problem. But I’ve made my point: Restoration work is a completely different animal.
Different, until you get to the “put-back” or rebuilding step. This is where the remodeling industry intersects the restoration industry. Put-back means what it implies – replacing the structure and finishes to their original state: framing, insulation, drywall, trim, flooring, painting, and so on. Margins are typically lower than for mitigation work, because put-back requires management and technical skills that cost more in the marketplace. This would obviously dilute a restoration contractor’s blended margin if he carried the fixed costs necessary to perform that kind of work. Therefore, many choose not to pursue it. But it’s also the type of work that matches a remodeler’s skills and resources.
Given the state of the remodeling industry right now and for the foreseeable future, this may present an opportunity for you to subcontract for a local restoration firm that does not currently perform the put-back portion of insurance claims work. The difficulty will be in convincing them that their company’s good name will not be tarnished by your failure to perform acceptably. That’s a hot-button issue, as their business relies on maintaining a satisfactory reputation among the insurance adjusters who feed them work. One bad job could undo years of good will.
So if you can demonstrate why there would be no risk in subbing to your company; or if you’re willing to become an employee, there might be an opportunity for steady work through this protracted slowdown. After all, fires and burst pipes don’t care about the economy.
P.S.: The second half of Martin’s joke is “Then say… ‘I forgot!’”