Learning About Contracting From Scratch

July 24, 2003
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EFFINGHAM, Ill. — Reed Price knows about the phrase “starting from scratch.” Only in his case, the starting point was a $4.5 million HVACR contracting business.

For Price, the thought of owning an established business with an outstanding reputation in this central Illinois community was an itch that was too hard not to scratch.

After over 20 years in the Yellow Pages publishing/sales business, Price became the proud owner of Merz Air Conditioning and Heating in January 2001. Merz is a 65-year-old company whose owner had no succession plan.

“The son of the owner made the decision that he didn’t want to join the business,” said Price. “The timing brought us together.”

Price’s immediate challenge for running this residential/commercial service company was learning about the HVACR business.

“I learned in my years in corporate America that the way to be successful is not to pretend you know everything,” he said. “You need to surround yourself with passionate people who are driven by vision.”

Except for one person, Price’s management team is brand-new.

“I’ve grown one person from within the business and brought the rest of the team members in over the past two years,” he said. “The skilled labor side [union] and the office staff were solid.”

Price is comfortable not getting involved with the mechanical side of the business.

“I still conscientiously elect not to understand the internal workings of a rooftop unit,” he said. “It is not what brings me to work every day. What brings me to work is the trailblazing for new business opportunities either through new product lines, acquisition, marketing, and sales.

“Don’t ask me how a piece of equipment works because I don’t care to know. I surround myself with people who make up for my technical shortcomings.”

Non-HVACR Background

Price considers himself a “product of corporate America.” The former University of Tennessee graduate climbed aboard the corporate fast-track program at Bell South Publishing, which he said he enjoyed being employed for 15 years. He was eventually persuaded to relocate to central Illinois and took “a great opportunity” with Illinois Consolidated Telephone Company.

Unfortunately for Price, five years later his company was sold in the midst of industry consolidation to another company based in Cedar Rapids, Iowa. Price started hearing whispers that he may have to relocate his family to Cedar Rapids — and that wasn’t an option.

“With a wife and two teenagers, we had come to appreciate living in central Illinois,” he said. “We needed to look at alternatives for staying where we were. And, frankly, I’d always been interested in owning my own business.”

The Merz advisory board consists of (back row from left) Len Oszustowicz, president, Ascension Capital Group (Dallas); John Oszustowicz, president, Oszustowicz Financial Planning (Carlisle, Pa.); Bill Saulle, controller, Merz Air Conditioning & Heating Inc.; Mary Louise Helbig, president, PFX Inc. Business Consulting (St. Louis); Eric Gudmestad, vice president-commercial lending, Wells Fargo Bank (St. Louis). Sitting: Reed Price, president, Merz Air Conditioning & Heating Inc.

Learning The Role

Price said that one important element in incorporating his new management team with the existing workers was to “tighten up the processes and procedures.” He said it took his team two years to accomplish this feat. In the meantime, revenues rose from $4.5 million to $6 million. The staff also grew from 32 to 40 employees.

Another issue which had to be addressed: cultural differences.

“I was not comfortable with the previous owner’s top-down management style, although he was successful,” said Price. “Our workers were now hearing about words like ‘empowerment,’ ‘judgment,’ ‘initiative,’ etc. These were words and skills that they had not been presented with before.

“For the past two years, we have been driving empowerment down as far as we can into the organization, challenging our people to make decisions on how to grow this business.”

Selling the ideas to a “tentative audience” wasn’t easy at first.

“All of a sudden these employees have some senior vice president of sales with a Yellow Pages background coming in to run their HVACR business,” said Price. “They were sitting back wondering what it was all about.

“We lost a few people, who, although they were very skilled, didn’t want to make the transition. When we asked these people to leave, there were other people ready to step up and take on additional responsibilities. That was the nice part.”

Price said he had one big advantage when he bought the business. The previous owner was part of an Air Conditioning Contractors of America (ACCA) MIX Group®. The previous owner gave him only one strong word of advice about the group.

“He insisted that I remain with the MIX Group,” Price said. “I took him up on his advice and it has been an absolute joy to be associated with these 10 other contractors. They are my operational board of directors. I have learned a tremendous amount about how to run a successful HVACR company from them — all successful owners.”

Another piece of the puzzle was to assemble a five-member advisory board made up of a venture capitalist, a sales and marketing person, a CPA, a mergers and acquisitions person, and a commercial banker.

“I have a full array of talent and services that have been a wonderful resource to helping me grow my business,” he said.

For other marketing and advertising tips, Price uses an ad agency out of New Orleans, which is experienced in the HVACR industry, and subscribes to Service Roundtable, a private Internet Web site for HVACR contractors. He also promotes his company online at www.merzac.com.

The Merz management team consists of:

  • Reed Price, president;

  • Bill Saulle, controller;

  • Howard Green, general manager-commercial sales;

  • Kathleen Blievernicht, manager-residential sales;

  • Mike Sargent, general sales manager, Merz IAQ, LLC;

  • Dennis Blievernicht, service manager;

  • Pat Gebben, residential project manager; and

  • Ken Kreke, commercial project manager.

    The Biggest Challenges

    Price acknowledged that there still are some challenges at Merz.

    “We have been trying to balance the leverage in the business with the growth opportunities that are available, based on where we are located,” he said. “There is an abundance of low-hanging fruit — in terms of geography and product/service lines that are available to us — but we have to balance that with the leverage we have introduced with debt, leverage that we have used to buy this business.”

    The other big issue was changing the mentality of the business.

    “The previous owner was right where everyone wants to be: No debt and content with a $4.5 million business. I am the new owner bringing in leverage and adding a very aggressive business plan, a plan predicated on the belief that the employees can bring different skill sets than they had been asked for in the past.”

    Publication date: 07/28/2003

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