Internet Advice Helps With Growing Pains

January 22, 2003
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BRANDON, Miss. — Ask Terry Magee if he knows what a slam-dunk is. No, it’s not a monster jam by an NBA superstar. In Magee’s case, a slam-dunk is a meteoric rise in revenues of at least 800 percent in less than nine months of HVACR service and replacement.

Along with the remarkable statistics, Magee has had to endure the necessary baggage — growing pains. Besides spending his waking hours working on his business, Magee also finds time to visit industry Web sites. He often stopped at the former Web site www.area51hvac.com and posted messages on the bulletin board at “Groom Lake.”

Magee posted some of the statistics from the past year and asked fellow “Lakers” if they had any advice on how to handle the sudden spike in business.

The Particulars

Magee listed the following information about his business:

  • Last year’s sales (2001) — approximately $79,000.

  • Sales as of the end of September 2002 — $681,000.

    He noted that the company employs four service techs and two installation crews, along with an office staff of three people, not including the service manager and installation manager.

    Service work makes up 73 percent of the firm’s business, with replacement (19 percent) and new construction (8 percent) rounding out the company’s typical workload.

    “Last year, we bought around $25,000 from our main supplier,” Magee wrote to the Web site in September. “Right now we are at almost $200,000.

    “Before changing the name of the company, I was a one-man operation doing just what I wanted to do,” Magee continued. “I was turning away work simply because I didn’t want to go back to that side of town or I wasn’t in the mood.

    “On Feb. 2, 2001 at 2 a.m. I had a brainstorm to check out a name of a company. After doing the basic checks on the name AirTech, I found nothing in my state and went ahead and registered over the Net that morning. I was still just a one-man operation. The reason for the name change was because I wanted to grow and I didn’t want the company operation under my real name as before.

    “I was doing home inspections for a local company here and started talking to the realtors and putting stickers on the equipment. I started getting more and more calls.”

    Magee, who had undergone back surgery in 1995, found himself fatigued after working late every day. He decided to hire a service technician to help with his workload.

    “Around June 2001, I was at a supply house picking up some equipment and ran into a guy I had seen around. I was so busy I offered this guy 30 percent of the business if he wanted to come work with me. He agreed a few days later, and that is when it really started.

    “I did not turn away any work, and while he worked I was drumming up more business and talking to American Home Shield (AHS), a home warranty company,” said Magee.

    “We had to hire a helper for my new partner, and finally made a deal with AHS for a minimum of 1,500 calls for 2002. We’ve been doing their work and our work and even picked up a couple of good builders. AHS makes up about 30 to 35 percent of our business.

    “We have spent a lot of money on advertising, direct mail, shop equipment, tools for the trucks, recovery machines, torches, vacuum pumps, etc.”

    Magee ended his post this way: “I know you are all wondering why all of a sudden I wanted to grow! I can’t really give you an honest answer, because I don’t know myself. But I knew it was the right time because a consolidator bought out a company a few years ago, and they were going to go through a name change, too. Perfect timing — I positioned myself as locally owned and operated.”

    Help From New Jersey

    Ken Secor is the owner of Palmer Heating, LLC, Rahway, N.J. In addition to his duties running his company, Secor is a member of the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE), a former state director for the New Jersey Plumbing-Heating-Cooling Contractors (NJ-PHCC), and a freelance writer specializing in technical and business management articles.

    Secor was also a frequent visitor to Groom Lake, and he took time to offer some business suggestions to Magee. His recommendations included:

  • Offer a discount for prompt payments.

  • Get to know your bank’s branch manager and get a line of credit. An unsecured loan of $25,000 is easy if your credit is good. You’ll need to do a lot of dancing to convince your bank that you merely changed names and the form of your company. You are still the guy they used to know — you simply changed your name.

  • Make sure you notify Dunn & Bradstreet that you merely changed names and you still are the same credit-worthy guy. This will provide a third-party commentary that you are not a completely new entity, and your former track record is a solid basis to predict the present and near future.

    Get a second mortgage on your home if you are not paying all bills in 10 days and getting the 2 percent discount. The rates are below 6 percent, and the discount results in a 24 percent savings over one year’s time. The interest on the mortgage is also a tax write-off.

  • Tighten your overhead nut as much as possible to make the cash flow as free as possible.

  • Become a “stickler” on payments. If customers don’t pay in 30 days, charge them for interest/ service. You are not running a bank. If they can’t pay their bills in under 30 days, they are using your funds to feed theirs — without any interest!

  • Try and maximize logistical considerations, e.g., attempt to define geographic territories into quadrants. Do it by ZIP codes or major highway intersections. To minimize travel time, try and keep a man in one general zone/area, and only alter the matrix when the load becomes so unbalanced as to be out of hand.

  • With a pattern that is so new, try and be a little more careful about the frequency with which you count the beans. With the dynamics you suggest, it wouldn’t take much to have things come undone, and the bean counting is most critical during wild fluctuations. Aging the receivables is especially critical at this juncture of wild spurts in revenue.

    Secor had a few more words of advice for Magee.

    “Then sit back and enjoy the ride,” he said. “Momentum is tough to gauge, but it would be ideal if you could just take a breather from the exponential growth and figure out how to deal with it — rather than perpetuate dynamics that you have yet to get a complete handle on.

    “Remember, it’s a lot easier to go from $100,000 to $1 million than it is to go from $1 million to $10 million — the reason being there was already an entity in place that was underutilized. The tremendous growth may now stretch resources past their ability to cope. Only you will know what to do about it, but having good help and a high level of quality work is always the right thing.”

    Online Help

    When asked about his experience obtaining help over the Internet, Magee replied, “I posted at Groom Lake because of the experience of the other people. I decided to post the growth problem because I thought others have gone through the same thing, and if by chance there was a person/company that wanted to grow, I wanted to let them know it is not fun and what to watch out for. The people at Groom Lake were great. I really enjoyed reading the posts and answers to some of the questions.

    “I had hired a consultant back in April of this year because I knew growth could kill us if we didn’t plan for it. I paid $30K for the advice and financial forms the company provided.

    “The only reason cash flow is a problem is because of me. I turned over some of the decision-making and made decisions based on inaccurate financial data. It is very important to have someone you can trust keeping the books. I have learned a lot, it was learned the hard way, so I will never forget the lesson.”

    Why did Secor offer advice? “I am of the opinion that it is better to light a candle than curse the darkness,” he said.

    “Unlike most of my peers, I do not think of those involved in plumbing, heating, and air conditioning as highly skilled, technically proficient and ethically motivated businessmen. I fear that our worst nightmares and TV coverage of unethical behavior — as evidenced by ‘NBC Dateline’ stings, newspaper articles, cartoons lambasting our trade, and consumer complaints to the myriad of state agencies in this country — are founded in facts and hard evidence.

    “I believe this perceived behavior is the norm, not the exception. Rather than suggest all the overwhelming evidence is tainted, I believe it is an embarrassment that needs to be acknowledged and openly debated. I have decided to speak up for people who provide value and do exceptionally high-quality work and who are doing something to improve our image by changing our collective ethic, rather than blame the media for what they publish.

    “I have given freely to anyone who asked, and will continue to challenge those who suggest it is profit and greed that are the basis of the business plan — not quality work and high ethical standards. I walk the walk, and, as I said, I have come to realize it is better to light that candle than curse the darkness.”

    Publication date: 01/27/2003

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