HVAC Companies Can Prosper in Down Economy

March 24, 2008
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Isaac Heating and Air Conditioning Inc., Rochester, N.Y., is up 15 to 18 percent over last year. Its backlog is up about 40 percent.


There haven’t been a lot of happy stories in the newspapers lately. Every day it seems we’re greeted with headlines telling us the housing market is down, the stock market is down, consumer spending is down, a recession is imminent. These are serious concerns that will most likely have a large impact on many contractors throughout 2008; however, positive thinking and a strong business plan can go a long way to mitigating the effects of a slowing economy.

Indeed, that was the message of marketing wiz, Adams Hudson, Hudson Ink, Montgomery, Ala., at the recent Air Conditioning Contractors of America (ACCA) meeting in Colorado Springs, Colo. Hudson told the crowd that a contractor’s first response to a hiccup in the economy is often to pull back all resources and just lay low for awhile. But successful contractors have a plan for getting through the slow times and face such challenges positively. As Hudson joked with the crowd, “Don’t think of the stock market as being down: Think of it as the stock market is having a sale, and now’s the time to buy.”

This kind of positive attitude is what contractors need to boldly face the industry’s challenges, which include a slowing housing market, rising fuel costs, an aging workforce, and yes, maybe even a recession. (Although as one local newspaper columnist recently noted, “Economists have correctly predicted 10 of the last two recessions.”)

We don’t really know what the economy will do this year, but one thing is certain: Residential and commercial buildings require operational heating and cooling equipment. Most businesses would love to have such an immense customer base that views their products and services as necessities, not luxuries.

DOWN ECONOMY HAS AN UP SIDE

One contractor who sees a silver lining in a slowing economy is Ray Isaac, president, Isaac Heating and Air Conditioning Inc., Rochester, N.Y., and ACCA’s chairman of the board. “We’ve been busier this year. We’ve grown, and I think most good companies do prosper in a down economy. We’re up 15 to 18 percent over last year right now, and our backlog is up about 40 percent.”

Isaac attributes this growth to several things. First, he believes that homeowners have a tendency to “nest” during times of economic uncertainty; that is, rather than move to new homes, they’d prefer to make their existing homes as comfortable and livable as possible. “Homeowners always want to have a properly designed and installed system, but they put even more importance on that during a slowdown. They really want to make sure they’re getting a good value, so every dollar they spend becomes more important.”

Second, Isaac believes that belonging to an industry association is imperative if a contracting firm wants to continue to grow during slow times.

“I look at the contractors in our local chapter meetings, and those guys are all doing well because they’re running good businesses. They’re pricing jobs properly, they’re understanding their financials, they understand the importance of diversification and not having all their eggs in one basket, and they understand the importance of customer service and service agreements. These are things you always hear when you go to an association meeting, but some people seem to think they don’t need to listen.”

Ike Casey, executive vice president, Plumbing-Heating-Cooling Contractors - National Association (PHCC) agrees that industry associations can help contractors ride out a softening economy.

“I don’t think our members were surprised much by any year-end financial figures. PHCC encourages members to prepare a financial forecast for the year, and make adjustments throughout the year if needed. In fact, we typically offer seminars on this topic at our annual conventions and regional events.”

Contractors who run their companies as professional businesses usually plan for downturns years in advance. Those who prepare and have a contingency plan will be more likely to stay in business over the long term.

On a national level, ACCA has recently embraced distance learning as a way to provide busy contractors with training in business management and technical expertise. Real-time online seminars, or Webinars, give contractors the chance to listen to, and interact with, leading contractors and industry experts on a variety of topics. Reaching contractors who do not have the time or local resources to attend association meetings has become a primary focus of the association’s growing educational program.

Mechanical Service Contractors of America (MSCA) also provides numerous opportunities for contractors to learn how to grow their businesses.

“MSCA does a great job training our industry’s sales managers, service managers, dispatchers, service sales representatives as well as upper management on all aspects of operating a successful service company through a multitude of training programs,” said Russ Borst; vice president of service, Hurst Mechanical, Belmont, Mich., and MSCA chairman of the board.

Associations can also help their members cope with major issues, such as attracting new people to the industry. For example, PHCC is working with the U.S. Department of Education to promote construction awareness in the middle grades. “We will continue to provide the training and education to build an effective workforce for our members’ future,” added Casey.

Other big issues that PHCC is currently working on include: immigration reform and the generational and cultural differences this will bring to the workplace; global competition, which will face contractors more on the local level than it has in the past - especially the proliferation of counterfeit products; and the 2008 presidential election, which will undoubtedly bring new challenges at the federal level.

Working through the HVACR Industry Alliance, a coalition of major HVACR associations, groups like ACCA and PHCC, have been raising their voices with government regulators and state officials on the need for better career education opportunities nationwide. The alliance believes that the current policy sentiments at all levels of government focus on four-year college education to the detriment of career education. In fact, high schools are incentivized to downplay career training.

No one company can change such an embedded philosophy - in fact, no one organization can successfully take on such a fight, and even working in concert, the alliance admits it is facing an uphill battle. But taking on such a challenge is an example of how industry associations benefit their members through broad policy initiatives.

As Isaac notes, “A lot of people don’t understand the value of belonging to an association. We’re out there fighting for things that they don’t even know about two years before they hear about them.”

Industry groups are working with government regulators and state officials on the need for better career education opportunities, outside of a traditional four-year college path.

FINDING A GREEN NICHE

Going green is one way in which industry associations are also helping their members to continue going strong in a weak economy. As Borst noted, “Our economy is not going to get better in 2008. Contractors need to look for opportunities or niche markets and focus on them.”

Offering green technologies is one of those opportunities because many consumers are interested in incorporating environmentally friendly products into their homes and businesses. Contractors who position themselves as being experts in the field will soon gain a following of devoted customers.

“If contractors don’t take advantage of the green movement, shame on them! This is ours for the taking,” said Borst. “The green movement is a lot of the same stuff we have been doing for years. Now we label it green and it sticks. Our energy studies and preventive maintenance programs are the same, with an added twist of green.”

To help gain green expertise, MSCA offers its Green Awareness training programs, in collaboration with the UA, HVAC Excellence, and Green Mechanical Council, to help service technicians, salespeople, and other in-house personnel understand green products, services, terminology, and technologies. In addition, MSCA is working closely with the U.S. Green Building Council to help with their training needs and make sure the role of the service contractor is adequately represented in all sustainable and high-performance building discussions.

Successful contractors have positioned themselves as professionals. What they do is a science, and they make others aware of their specialized services.

PHCC is also knee-deep in the green movement, exploring the processes that will bring about water savings and providing the education and awareness so that members can help their customers make the right decision for conserving water. “Contractors are seeking answers to the green movement,” said Casey. “They want to give their customers systems that work. In California, our members are becoming certified as GreenPlumbers and finding this resonates with the general public. Also, many members are becoming specialists in lean construction.”

ACCA has long been associated with the propagation of sound design in the HVACR industry, authoring the industry standards for residential and light commercial system design. In some ways, the association believes that the green movement represents a full circle back to its first principles. The association believes that professional design according to its standards will not only produce greener buildings and energy efficiency, but increased occupant comfort.

Green is the wave of the future, which is why Isaac encourages contractors to form partnerships with other service providers, such as insulation, door, and window companies, so that they can offer a whole-house solution. “Companies are trying to be jacks of all trades, saying they do everything that’s needed to achieve an efficient building. We realized we can’t do all that, which is why we’ve partnered with local companies in other disciplines. Green is going to be the big thing - it already is. We need to be the ones who provide solutions and alternatives.”

Grabbing opportunities and facing down serious challenges with a strong plan and a positive outlook are the best ways to face 2008. As Isaac states, “You’re going to see some changes in our industry, some expected and some unexpected, but it will be for the better. I believe we’re heading in the right direction.”

Publication date: 03/24/2008

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