Evolution of the Commercial Contractor: A panel discussion - Jun 19

By Beth Miller

Entrepreneurial commercial contractors have uncovered new opportunities to both provide additional services to existing customers and target a new set of customers. As such, the roles and skill sets of the contemporary commercial contractor continue to evolve beyond the fundamental product and installation and maintenance businesses. Discussing the evolution of the business are four leading commercial flooring contractors and Starnet members: Mike Patton, owner of DSB+, headquartered in Livermore, California; Grant Petruzzelli, president of Universal Metro, located in Santa Fe Springs, California; Jim Vanhauer, founder and president of Commercial Flooring Systems, located in Omaha, Nebraska; and Randy Weis, owner of RD Weis, headquartered in Elmsford, New York.

Q: What were your core flooring product services ten years ago?
Petruzzelli: Ten years ago, the economic market was in chaos, and while many of our projects were budgeted in the years prior, the need to value engineer projects was increasing, as owners tightened up their spending. Projects in our pipeline were being cancelled, and facilities turned their focus on the most urgent needs, bringing those smaller projects in-house. As the healthcare leader in our marketplace, much of our concentration of products was focused on the needs of hospitals at the time. As such, we predominantly installed sheet vinyl and linoleum over any other finishes. When those economic constraints hit our projects, VCT was often used as the lower priced alternative to sheet goods, and when carpet could be used, it was mostly broadloom. The focus at the time was largely financially driven, as facilities attempted to stretch whatever dollars they had rather than focus on long-term solutions.

Patton: We focused almost exclusively on the corporate tenant improvement market, providing and installing carpet and vinyl floors.

Vanhauer: Ten years ago, our core flooring products and services were carpet (predominantly carpet tile), resilient products and tile as an adjunct to the main categories.

Weis: Ten years ago, we focused on the supply and installation of carpet and resilient as well as floorcovering cleaning and maintenance. We also did some tile and grout restoration-that was pretty much our total business.

Q: What new products and services have you added in the last few years?
Petruzzelli: The availability of capital has expanded design budgets, which has allowed highly customized finishes like porcelain tile and polished concrete to emerge as popular product offerings on nearly every large-scale project. For us, it was vital to expand our abilities to service those needs and meet that demand, offering a “single source” solution to general contractors and end users. One key outcome of the recession was our effort to bring services like moisture testing, infection control and lift systems in-house. This has allowed our clients another opportunity to bundle our service offerings under one contract, rather than addressing those needs (and schedules) with additional subcontractors on the same job.

Patton: We added our maintenance business nine years ago as our first expansion of products and services. About six years ago, we added a concrete division, which levels floors, installs moisture control systems and polishes concrete.

Vanhauer: We have added a floor care division, tile and stone as a major category, floor coatings and epoxy, polished concrete, liquid linoleum and the Altro Whiterock wall system.

Weis: The new products we’ve added in the last five years are ceramic and stone supply and installation, concrete polishing, epoxy and other poured floors, stone metal and marble restoration, and we also added a sports division.

Q: What drove your diversification? What sectors are most interested in your new services?
Weis: For almost all businesses, organic growth is difficult, and we found ourselves just not organically getting the growth we wanted. The other part is that more of our customers want a bundled approach to services, meaning they don’t want somebody to just provide one thing. As an example, I’ve got a client that wants us to paint, as part of a flooring project, and while that’s not something we typically offer, we’re doing it to take care of our customers. The third thing that drove us to diversity was just higher margins. A lot of these areas, like the epoxy coating dimension and ceramic tile installation, are things that the average self-performing labor person sometimes shies away from because of its complexity. Carpet tile, for example, is really easy, many people can do that, but a much smaller group of people get into exotic coatings or stone, marble and ceramic. The sectors that are most interested in our new offerings are corporate, public space, healthcare and education.

Patton: Maintenance was added as a way to connect with end users and really get our hands around our customers, and concrete was added in response to what our customers were demanding-as well as better margins for both. Our customers want us to perform these services in house, and now we do. Our maintenance program predominantly services corporate clients, and concrete services are in demand in the corporate segment as well as retail and education.

Petruzzelli: The same facilities that were forced to use lower-cost solutions ten years ago have grown in their understanding of what risks stem from compromising on quality and what efforts can be taken to stretch their dollar. Lifecycle costs are a big part of the conversation today, as facilities want to be assured that their investment will lend itself to better performance, lower maintenance and reduced risk. Our efforts to educate our clients on the real costs of the products and services they choose has been instrumental in our ability to differentiate ourselves from the competition. Additionally, moisture control systems are finally being recognized as vital, rather than supplemental to a flooring project. The industry is progressively taking on the problem with advanced adhesives and other inherent moisture-control solutions.

Vanhauer: Two things drove that diversity. First, general contractors have encouraged us to include as many flooring segments as possible into one package. And second, we are always searching for new products and services that make us unique and hold the possibility of additional profitability.

Q: Have you added new customers as a result of this change?
Weis: We have. It’s been an avenue of differentiation for us. If we had not added these new services, our top line would be down 20% to 25%.

Petruzzelli: Our ability to provide more services in house has dramatically increased our client mix. For existing clients, we have focused on expanding the services we offer and broadening our market reach. Our ability to package finishes like ceramic, concrete polishing and epoxy under one contract has freed up our clients from chasing down these needs with other subs, while also eliminating the logistical challenges that stem from managing multiple schedules. These same clients have pursued our expertise to address moisture concerns in the corporate, hospitality and education market segments as well. Facilities have taken advantage of our ability to self-perform infection control, demo, lift installations and other services that reduce their liability and down time. Our ability to do what others can’t is the best tool we have to overcome barriers for entry.

Vanhauer: Offering floor care has opened opportunities to cross-sell between the divisions. Every P/I job we sell gets a follow-up for floor care, and we are finding that making contact early, before the job starts, is most effective. And floor care, of course, brings us into P/I jobs that we normally may not have been aware of. Being able to package all of the categories gives us an advantage over the competition. For example, we recently completed a large architectural headquarters project that was half carpet and half polished concrete. Five years ago, we wouldn’t have had that capability.

Patton: Yes, more general contractors and end users as well as corporate real estate services companies, like CBRE and JLL, who want fewer vendors and more single-source solutions.

Q: Which of your new services are the most beneficial to your top line?
Vanhauer: In approximate terms, floor care, including coatings and sealers, adds 10% to the top line; tile and stone add 15%; and the aggregate of the others an additional 5%. The impact on the bottom exceeds the top-line growth.

Patton: Maintenance has added more than $2 million, and the concrete services division has added another $6 million.

Petruzzelli: Over the past ten years, we have grown considerably. Ceramic, moisture control and concrete underlayments were the most significant extensions, increasing our top line growth by at least 30%.

Q: Where did you acquire the expertise needed to master the new services you added?
Petruzzelli: Much of our expertise is rooted in the strategic partnerships we have made with vendors and local specialists. We pushed our staff and their labor teams to pursue training in emerging technologies and used our certification standing (like that of Ardex LevelMaster Elite Installer, Henry’s SystemOne, Armstrong Level III, etc.) as differentiators in the marketplace. Additionally, we have held workshops at our offices with experts in polished concrete, ceramic tile, moisture testing, infection control and expanded service offerings to broaden the expertise of the entire team.

Vanhauer: We have been very active in taking advantage of training and certification offered to us by the manufacturers-most notably DalTile, Neverstrip and Altro-as well as tile and stone programs sponsored jointly by Starnet and National Tile Contractor Association, which was excellent with estimating and project management as its focus.

Weis: Starnet offers a lot of benchmarking between members and a lot of training. We also get that expertise from hiring experienced people who have actually done this before. So we’ve brought in some people with experience.

Patton: We searched for the best young talent available, found Delmar Vasquez and made him a partner in the new maintenance business. We were fortunate to have one of the premier senior project managers in the concrete world, Sue Juzkow, joined our sales team. Then, we had one of our partners and leaders, Si Baxley, take ownership of the effort.

Q: What was the learning curve, and what did you have to acquire to satisfy the necessary requirements?
Vanhauer: The learning curve for any specialized product is certainly steep, and you can expect an expensive lesson or two along the way. Anyone who has ever seen a punch list with the term “grout haze” knows what I’m talking about. As I mentioned before, taking advantage of any and all training is important, as well as investing in the necessary tools and machinery. For example, installing a large-format tile project is nearly impossible without having the right material handling apparatus, cutting tables, tools and training.

Patton: In maintenance, it was a slow process, beginning with carpet care, and then we expanded carefully with the support of NeverStrip, a Starnet vendor partner, into high performance coatings, which now accounts for 50% of our revenues. In our concrete services department, beginning with the World of Concrete show and now with Jon-Don as a Starnet vendor partner, the industry resources were critical to our success as well as sharing best practices with other Starnet members.

Petruzzelli: The biggest learning curve is often the time it takes for an entire team to understand the dynamics of the services now being offered. For example, as we grew our ceramic tile business, it was important that everyone involved in the project understood what materials were needed to execute an installation in the field. As such, beyond the salesman or an estimator putting together the tile bid, the coordinator who was procuring material and the warehouse team receiving and loading out material had to be equally aware of what was needed for the installer to achieve a high-quality installation-from setting materials to trim pieces.

Weis: The learning curve is different on all these new services, but I would say that, on any of our services before you really get all the bugs worked out, you’re looking at a six- to 12-month commitment to get things really nailed down and really right. If it was easy, everyone would do it.

Q: Beyond a direct sales effort, how did you promote the new service extensions to prospective customers?
Petruzzelli: Certifications are differentiators that are often promoted by our vendor partners. They want to reduce risk on their projects as much as we do, and thus, they often will refer us when they want to ensure their specifications are followed and executed at a high level. We have supported their efforts to gain market penetration through mock-up opportunities and other collaborative efforts, like CEU presentations, to help them build trust with our mutual clients. Vendors like Ardex also provide us with a unique opportunity to inspect jobsites together, allowing us to create customized solutions for the toughest installation challenges.

Vanhauer: We have engaged a marketing person tasked with producing monthly email blasts introducing our new and unique products and services and then following up with stories of successful projects. We also make sure any products that we are certified to install are noted on that manufacturer's website.

Weis: We use social media a lot. We also do e-blasts, trade shows and lunch-and-learns with design firms for those services and products that are unique to us. Social media is the most effective, and I would rank social media as the thing that we get the biggest response on. There is not a week that goes by that we do not have an inquiry that we can follow up on that comes our way through social media.

Q: Have you exited business in the last five years?
Patton: We tried our hand at ceramic tile and stone with mixed results. We exited that business for now, but it is in our plans to add it back in the future.

Petruzzelli: While we still perform some maintenance on a project specific basis, that division of our business is largely underutilized. We still have a desire to grow that division eventually. We found that our ability to keep our maintenance team busy was impeded by our end user’s desire to self-perform many of their maintenance efforts. Additionally, as general contractors increased efforts to pursue bids through geomapping services, we promoted one of our estimators into a sales role, supporting his desire to convert these leads into new business opportunities. Despite our efforts to pursue more opportunities with lesser-known contractors, we have since chosen to disband the effort, pursuing deeper relationships with key targets.

Vanhauer: No, we have not.

Weis: We haven’t really exited a business. We did sell our Michigan operation to a fellow Starnet member. It was a location that was a bit far from our home base, and it really made more sense for us to focus on what was closer to us and a lot more core to what we do.

Q: What other changes have you made that have contributed to your success?
Patton: In 2010, we were a $10-million business, growing to $35 million by 2018. We rebranded from our founding 22 years ago as D.S. Baxley Inc. to DSB+ with a new look in 2013-from the logo to our vehicles to our website-as we established ourselves as a single-source solution here in the Bay Area. We are responding to the demands of the market.

Petruzzelli: The biggest change over the past five years was our desire to grow and our commitment to meet the demands of the market. We self-promoted key staff into leadership positions, opened an additional office to service a broader geography, added support staff to increase our capacity, partnered with labor teams interested in growing with us, and identified key vendor partners that could support our efforts to bring our expanded service offerings to existing customers and viable targets. And we brought in an experienced business developer to bolster our presence in market segments like corporate and hospitality.

Vanhauer: My son James joined the company three years ago with a background in accounting and several years in sales with one of the major commercial flooring manufacturers. James has driven most of our new categories and energized our floor care sales department. Also, we continue to grow our in-house labor force, giving us an edge in service and quality.

Weis: One of our strengths is that we have low turnover. When you have high turnover, it is really hard to get momentum and keep it going. We have focused a lot of effort on the human resource and employment development side of our business.

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