Dallas-area HVAC contractors gathered for a meeting of the minds at Sammy’s BBQ. The group included (from left): Toby Taylor, Larry Taylor, Steve Saunders, Ann Kahn, Josh Kahn, Ben Stark, and Brett Hobson.

Contractors discussed topics including insurance, the local market, customer expectations, and employee management. Although successful and highly visible, these contractors know that it is a "what have you done for me lately" world and customers are becoming more demanding and educated.

"The target is moving all of the time," said Josh Kahn of Kahn Mechanical. "You can't rest on your past laurels."

Larry Taylor of Air Rite Air Conditioning and a member of The NEWS' Contractor Consultants, agreed, "Don't believe in your own press and get complacent."

BUSINESS AND PROFITABILITY

The group agreed that business owners who don't understand profitability and how to price a job are likely to fail, but there will always be someone next in line to replace them in the marketplace. "As soon as 10 businesses go bankrupt, there will be 15 to replace them," noted Kahn. "The bottom will always be there."

He said one of the best things any contractor can do to understand the nuances of running a profitable HVAC business is join a group of peers and exchange best practice ideas. In Kahn's example, he talked about his involvement with Mixâ„¢ Groups, a benefit of membership in the Air Conditioning Contractors of America (ACCA).

"People in our group really understand pricing," he said. "We don't bid any jobs like we used to."

Ben Stark of Stark Air makes the effort to educate other members of his local ACCA chapter. He recently hosted his first business training seminar where pricing and profitability were part of the overall program. He believes all business owners need to step out of their mechanical background and into the business background - and for good reason. "People are always worried about pricing and competition," he said.

"You are a business person once you decide to hang out your own shingle," said Brett Hobson of Comfort Experts. "Some people don't understand that, which leads to confusing profitability with cash flow."

Ann Kahn of Kahn Mechanical, also a member of The NEWS' Contractor Consultants, said that contractors shouldn't always expect to make the same profits on each job; and they may not even make a profit at all. Stark agreed, adding, "You need to have a breakeven point and know that going into a bid."

KEEPING EMPLOYEES HAPPY... AND INSURED

Hobson believes that giving employees responsibilities and leadership roles are keys to keeping them happy and productive. "My job is to develop leadership in my managers," he noted. "It is important to develop levels of management and pass along your leadership skills."

Stark agreed, adding, "I believe in empowerment. I look for that when hiring people: the ability to take responsibility and act on their own."

But all of the empowerment in the world may not be enough if employees aren't compensated for their skills and loyalty. In today's business climate, that means providing security by offering good health insurance plans. "There are people out there making $50,000 a year who can't afford health insurance for their family," said Josh Kahn. "That is not right."

Stark said, "It is important for long-term employee retention to offer health care insurance."

Steve Saunders of Tempo Mechanical said that the more people his company insures, the less the cost per employee. "We pay 65 percent of health care insurance regardless of whether an employee is single or has dependents," he said. "Their health care costs usually average an hour of work a week from their paycheck."

Taylor offered an idea that garnered a lot of interest among the group. "I think that the longer an employee stays with a company, the higher percentage of coverage he or she should get - kind of a tiered insurance plan."

Hobson was blunt with his assessment. "Compensate them or compete with them," he said.

CHANGING WORLD AROUND US

Some of the group agreed that the gap between the large successful contractors and the smaller mom-and-pops continues to widen - and the middle ground may not be a safe place to be.

"The big will get bigger and the smaller will shrink," said Saunders. "The ones in the middle have to decide where they want to go."

Josh Kahn noted, "It is too hard to stay in the middle between both."

The role of the customer has changed a lot also. They are becoming more selective and have less time to wait for what they want. "In the '70s, customers' expectation were lower," said Larry Taylor. "Customers accepted less comfort, and we contractors were more profitable."

Hobson said the problem is that customers are becoming more sophisticated at a quicker pace. "Our customers have changed faster than us," he said. "People don't want to wait for service. The contractors who understand that and who are more sophisticated are getting better."

Larry Taylor said that contractors may need to go after the "unseen market," the customers who don't flock to nontraditional competitors because of price.

"The big box guys will pick the easy fruit - price shoppers," he said. "But it is the unseen bulk of the market that the rest of us have. If you take the box out of the equation, the big box guys are out of the picture. They want to turn boxes quick. Small contractors need to look at this unseen market."

Stark said that by only selling boxes, contractors are ignoring some of the bigger issues facing homeowners. "We have to open our minds up to the energy issues," he said.

Speaking of energy, Josh Kahn said that utility companies will still be part of the competitive landscape in years to come and HVAC contractors need to look at themselves to provide energy solutions. "The fuel cell business will become very important," he noted. "And if we don't get into it, electricians will. We are in the energy business."

Yet not all customers will look for energy savings. As Saunders noted, new home buyers are "more interested in Jacuzzis and marble top counters than a healthy home."

Hobson agreed and noted, "If the average home size was 1,500 square feet in the '70s and is 2,500 square feet now, where is the concern for energy savings?"

The point is, everyone's expectations are different. Managing the expectations is a key. Ann Kahn said it was simple, "You have to understand what the customers want. And you have to have a continuous plan to get new customers."

Hobson noted that migration shifts and death alone can take away 30 percent of a customer base. There is a need to replenish the customer base while maintaining a strong relationship with existing customers. "We have to think of ourselves as the same as carpet cleaners or lawn care people," he said. "We are in the retail service business."

Saunders said the real key for HVAC contractors is to keep the momentum. "The challenge is to keep things moving and avoid stopping and starting."

Hobson concluded that contractors' biggest fear is themselves. "I can't kill my competition, but I can kill my own business," he said.

To obtain a copy of the small contractor survey results, contact NEWS' business management editor John R. Hall at johnhall@achrnews.com.

Sidebar: ACCA Members at Gala

CSF was established in 1999 by the North Texas Chapter of the Air Conditioning Contractors of America (North Texas ACCA). Former North Texas ACCA member and HVAC contractor, Teddy Barker, founded CSF. The mission of CSF is to improve the quality of life for the elderly, disabled, and low-income homeowners of the Dallas/Ft. Worth area by servicing and maintaining safe and energy-efficient HVAC equipment.

Thanks to its success, the Heat the Town model has been implemented in other parts of the United States.

Prominent HVAC contractors on the 2005-06 CSF board of directors include president Chuck Webb of TDIndustries, directors Ken Shafer of Dring Air Conditioning, and Steve Wilson of Wilson Heating & Air. Advisory Council members include Ann & Josh Kahn of Kahn Mechanical, Jose Gonzalez of TDIndustries, and Jennifer Shafer of Dring Air Conditioning.

Publication date: 02/20/2006