Thursday, November 4, 2010

Restoration Revisited

In February 2009, I wrote a column about how remodelers hard hit by the recession might be able to get some work in the insurance restoration industry. The gist was that since many restoration contractors don’t have the resources to handle reconstruction work, a remodeler might want to pursue this as a subcontracting opportunity. I concluded, “After all, fires and burst pipes don’t care about the economy.”

Here we are almost two years later, and the remodeling market isn’t what anyone would call robust. While my original advice still holds true, there’s another opportunity to consider: Become a restoration contractor. Now, on the face of it, this contradicts my original argument. I had discouraged remodelers from jumping into restoration work because it’s an entirely different business from remodeling, with different technical skills, pricing methodology, equipment requirements and marketing tactics. Given these differences, it would be highly risky for a remodeler with no prior insurance industry experience to make the attempt – without a lot of guidance.

There happens to be an established model for guiding people through a business start-up in an unfamiliar industry. It’s called franchising. As a former executive of a remodeling franchise, I can argue both the merits and the disadvantages of franchising as a business strategy – it’s not for everyone. But in the right circumstances for both the franchisee and the franchisor, it is an excellent option.

There are a number of national insurance restoration franchise organizations serving various segments of the insurance restoration industry: water mitigation, fire damage, catastrophic loss (hurricanes, earthquakes, etc.), carpet and upholstery cleaning, laundry and dry cleaning, and so on. The logical opportunity for a remodeler would be with organizations that work mostly in water mitigation and fire damage, which frequently involve reconstruction work. A downside, though, is that the big players in these markets have pretty much reached market saturation–there aren’t a lot of open territories remaining. Another issue is that, by and large, their target profile for a franchisee is an existing independent restoration contractor or cleaning contractor.

One franchise organization, though, has made the strategic decision to target remodeling contractors. First General Services (FGS), based in Orlando FL, has a business strategy centered on the belief that a remodeler can easily be trained to do water mitigation and fire restoration work; but there isn’t enough classroom time for a cleaning contractor to learn the building skills that a remodeler has spent a career acquiring.

When asked how becoming a franchisee would be a growth opportunity for a remodeler, FGS’s president Joel Dagenais says, “There’s a steady stream of work after you get on the carriers’ lists and develop good relationships with adjusters and agents. Margins should be better than in remodeling with this economy because you’re not competing against the pickup truck contractors–most established competition comes from larger, high-overhead operations. And with insurance work, you know that the money will always be there, because insurance companies are footing the bill; so collections are less of an issue. There’s also less marketing to do after developing the relationships, because you have a recurring relationship with just a few companies and people.”

This is all well and good, as long as the contractor can develop those relationships. This is where Dagenais believes remodelers bring a competitive advantage to the game. “After years of doing things the old way, carriers are pulling back,” he says. Many established restoration contractors have gotten a little too comfortable being treated generously by insurance carriers, and have grown high-overhead companies that don’t run as lean as a typical remodeling company. Dagenais believes that since remodelers have had to develop lean organizations because of the economy, they have a competitive edge over existing restoration contractors who've become used to the old way of doing things.

Most seasoned remodelers remember the expensive mistakes they made in the early days, and would advise any startup to have a mentor to help them develop the skills necessary to run a viable enterprise. Dagenais recognizes this, which is why FGS’s goal is to provide the training and support to replace the first three years of the learning curve. Nothing is guaranteed in this world, but for remodelers facing an uncertain future, a little research into the world of insurance restoration might be worth the effort.

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