Forward, beyond fear

With survival mode in the rearview mirror and growth lying ahead, many remodelers are chugging along post-recession as well as they were years ago. Some, however, are choosing to restrict their growth, and some are not growing at all. Many factors determine whether a remodeler chooses to grow or cocoon, including the remodeler’s age, the level of risk one is willing to embrace, and financial goals. Qualified Remodeler interviewed four remodelers to get their perspectives about the recession, fear of moving forward, and what lies ahead for those still playing the remodeling game.

As Bill Shaw talks to remodelers from his home state Texas and around the country, he hears heartbreaking stories about remodelers going out of business, and those that survived but don’t plan on rebuilding their businesses. His perception is that age can play a large role in whether or not a remodeler chooses to rebuild or “cocoon,” as he puts it.

“For the new remodelers in their 30s, this was their first major recession and they’ve rallied as they should after surviving,” Shaw says. “They have knuckled under, made changes, diversified and done whatever is needed to grow. But I also see the struggles in the older generations of remodelers; guys in their late 40s, 50s and early 60s. They came out of the recession having invested a lot of personal money back into their businesses; they have dipped into or lost their retirement income and are faced with having to rebuild that wealth.”

Shaw sees a large group of remodelers that are cocooning or choosing to stay under a million or $1.5 million in revenue, operating by themselves with a part-time bookkeeper, project manager or a few guys in the field, he says. “They’ve come down from an operation that had been 10 or 12 people and are now down to four. They’re not ready to grow again.

“Many of them are uncertain about the future in this market and are pessimistic. They feel like, ‘You know what, I’m going to stay small, keep my overhead low, and go back into the field myself if I need to.’ They’re not interested in taking the company back up to its employment capacity. They’re operating out of their homes; they really got rattled. A problem as I see it, however, is a lot of these guys are not really involved at the local, state and national levels so their source of information in terms of the economy and how it affects their potential is limited, therefore they’re a little scared. They’re not hearing the things I hear when I’m at National Association of Home Builders meetings. I come away feeling a lot better than they feel because I have information they don’t,” he adds.

Cocooning or remaining small can make it difficult to have time for business planning and tracking financial issues, all of which sets up a company for bigger problems, Shaw notes. “You still need time for a business and marketing plan. When a business shrinks, business and marketing plans go out the window. Then one day the phone hasn’t rung in weeks, and then what?” At the same time, when colleagues’ phones are ringing off the hook, it’s tough to not want to grow with them. Therefore, Shaw doesn’t see the cocooning phase lasting long.

A key to growth will be diversification, Shaw believes. “The real challenge will be marketing all your divisions and hiring staff to do the work, but I don’t see alternatives to that. Remodelers must have ways to keep in touch with clients, but not through social media. It will have to be face-to-face contact to keep the past customer base informed of all the services you provide,” he says.

Irons Brothers Construction in Shoreline, Wash., is planning on growing its existing business as well as growing its soon-to-launch showroom. Upon realizing that the core of his business is service, he also realized that he moves a large amount of product, too. It became clear that a showroom could help solidify the remodeling firm’s future, says Joseph Irons, president.

“Our goal for opening the showroom is to have more architects and designers here having meetings with clients. We want to draw people in with it. For me, there will be growing pains because we’ve never had a space like this to coordinate in terms of who’s in which meeting room and when. We’re planning monthly events for the public, too. It also will be a space to promote our projects and the type of work we’re capable of,” Irons says.

The showroom had its origins in the pre-recession era, but the company lacked the resources to make it a reality. In fact, staff cutbacks were made and Irons invested personal money to keep the company operating. Now, five years later when the business is back on track, the time is right to open the showroom, he says.

During those five years it was necessary to review every aspect of the business, including marketing budgets and memberships in several associations. “We looked at the return on each of them and evaluated how to move forward. We’re also trying to become more systemized as a company— electronic time clocks, GPS vehicle tracking. Those wanting to grow are looking for innovative ways to be more efficient while maintaining quality. For me, it’s how do I get the same results spending less time getting them?”

Ultimately, Irons’ plan for success is pretty simple. “We identified our best jobs and why they are the best, and we plan on doing more of those jobs.”

The recession was an opportunity for leaders at Crawford Builders in Lexington, Ky., to retool the business model, like it was for many remodelers throughout the country. Most of its pre-recession business was done on bid, but the remodeler now operates as a design-build firm specializing in high-end work. Most of its volume, however, is in smaller projects, says Chip Crawford, partner. About 75 percent of the company’s volume today is in remodeling.

To become a design-build firm, Crawford expanded his staff to include interior designers, among others. Bringing more functions in-house has positioned Crawford to capitalize on the increase in business experienced in the past year.

“Now, I have built-in capacity to do a little bit more work as demand increases,” Crawford says. “Our projects are getting bigger, too. From my perspective, the retooling allowed us to sharpen our business and position us to have an additional revenue stream. We’re expecting to increase revenue and grow.”

Crawford’s business would not have been in a position to grow if not for the 42-year history of conservative business practices by his father. The philosophy had been in place since inception, leaving the firm without debt or liability, and with no speculative properties. “Those practices really allowed us to prosper. We retooled out of necessity, but the real reason we survived was because of how healthy the company was before the recession.”

Crawford has seen the cocooning process take hold with others in his market not prepared to grow like he is. “It’s clear to me that the industry contracted in central Kentucky. Each firm that survived retooled. The successful ones are much smaller-volume firms than we are. Those small companies are staying small. We’ve seen surprising reluctance from those smaller firms to market themselves, too. For example, we put on a local tour of remodeled homes in August [2013]. We also did a new home and remodeling show and a few other events that allows remodelers to market to the public. We had difficulty finding remodelers to participate because they were as busy as they wanted to be. They seem to have found how to be comfortable, happy and profitable doing smaller-volume, smaller-scale projects,” he says.

Positive mental attitude has driven Cashion Home Improvements in Oklahoma City to a position where it can capitalize on post-recession opportunities. Ed Earnest, president, is one of those remodelers who says he chose not to participate in the recession. Instead, he chose to take advantage of being in a market he admits doesn’t see the amount of change seen in most other areas of the country. “For us, getting through the recession was all about our perception of what was going on. We simply didn’t address the recession, internally or with clients, and we forged ahead,” he says.

Forging ahead doesn’t mean reckless abandon. On the contrary, Earnest likes to control annual company growth at 10 percent. “We never want growth to run away from us. Part of that is hiring staff to support that growth, and we’re not afraid to take that step. Many small to medium-sized businesses under the $10 million mark are under-staffed. That relates directly to customer service, which usually suffers. If you’re selling 100 jobs and you have only one lady in the office, she won’t be able to handle it. No one could. You must have the appropriate staff support in place and not be afraid to hire more.”

Margins are healthy right now, Earnest says, thanks to a lack of competition from the remodelers choosing to cocoon. “Every remodeler should look at what they do well, and if there’s not much competition, raise your margin while you can. Go after it,” he advises.

Remodelers who cocoon could be scared or tired and unsure of the market, but they also could be fed up with all the change and regulation in the industry, too, Earnest says. “It might not be that remodelers are cocooning; it could be that they simply don’t want to continue. They don’t want to deal with it anymore. We will see more regulation moving forward, and remodelers are getting out of the business because of it.”

For remodelers who choose to play the remodeling game, a major challenge Earnest sees is connecting with the Y generation, or those 18 to 25 years old and getting older. “The challenges are marketing to them; how do you do it? It will be important. If you plan on being in it for a while, you’ve got to figure out how to reach them. They don’t know a world without cellphones and the Internet. Marketing is always a challenge.” QR