Why HVAC Contracting Businesses Fail
January 29, 2007
Every year almost 500,000 small businesses close their doors forever. During the same period in the same economy, over 100,000 small business owners become millionaires. The HVACR industry experiences a similar imbalance. The number of HVAC contractors struggling to survive far outweighs those who’ve reached financial freedom. After 35 years of observing thousands of contractors, I believe the wealthiest ones have identified and are constantly working to eliminate 10 factors that lead to business failure.
FAILURE IS AN OPTION1. Failure to move from technician to manager. Most HVAC business owners are great technicians. Many feel no one can troubleshoot and repair problems faster or better than they can. The irony is, outstanding technical skills alone seriously limit business success. The income of technician business owners is limited by how much work they can do. In one day they might run three service calls, rush parts to the install crew, take checks to the bank, complete an overdue proposal and catch a sales call on the way home.
If you’re an “I can do it all” owner, are you ever late for appointments, rush through sales calls, fail to plan or forget to keep promises? The seeds of failure, frustration, and exhaustion are planted every time something important doesn’t get done.
One way to make the transition to manager, while working a crazy schedule, is to read a college level textbook every month. Textbooks containing in-depth information on topics ranging from supervision to small business management can be purchased from your closest college bookstore. Start your own research library and have a wealth of answers readily available as your business changes, grows, and prospers.
2. Failure to embrace change. Instead of adopting change early so it can be used as a marketing tool, a huge number of contractors wait until the last minute then waste irreplaceable time and serious money rushing to change.
Aristotle, one of the world’s greatest thinkers said, “Change is the actualization of potential.” He also discovered, “Change is continuous.” He knew it was impossible for anything, including business, to reach its full potential without constant change.
Willingness to change is determined by attitude. William James, the Harvard psychologist, gave us the secret to embracing change when he said, “My greatest discovery in life has been that human beings can change their lives by altering their attitudes.”
3. Failure to permit natural growth. When customers are delighted with your people, products, and services, your business will naturally grow. An amazing number of HVAC contractors intentionally fight natural growth and try to keep their business at a “manageable level.”
Instead of trying to limit growth, you must have a plan to continuously attract new customers. Even the best businesses in America lose up to 20 percent of their customers every year.
4. Failure to manage growth. A surprising number of contractors grow, encounter problems, and then go back to where they came. The most common reason given for reverse growth is, “We were bigger but found we made more money and had less problems when we were small.”
Almost every contractor I’ve known who intentionally downsized did not have a process to manage growth. If you don’t manage new growth and new people, you create a myriad of new problems. Production, customer satisfaction, and cash flow problems can multiply like rabbits on growth hormones.
A process is a particular method of doing something involving a number of steps or operations. W. Edward Deming, the statistician who helped the United States improve production during World War II then taught top Japanese management how to improve quality, production and sales, said, “Ninety-four percent of failure is caused by process, not people.”
Your growth management process starts by answering some basic questions: What do we want to grow? How are we going to grow it? How will growth be funded? How will results be measured? Developing a high-profit, low-risk growth process can be as easy as PIE: Plan – Implement – Evaluate.
NEW SKILL SETS REQUIRED5. Failure to acquire business skills. Many business owners work long hours, sweat making payroll, and miss their kids’ ball games while hanging onto their business by their fingernails. Why? They lack the skills required to grow their business. There are two ways to acquire business-building skills: learn them or hire people who already have them.
Our industry abounds with opportunities to learn real-world skills that can skyrocket your business far beyond your competition. Ask your equipment distributor for a list of business program subjects and dates. If your distributor doesn’t provide dealer training, find one that does. Consider joining contractor-success-focused organizations and look into attending small business courses at your local community college.
6. Failure to employ a dedicated sales team. Imagine your business as an engine that pulls ore cars from a mine. You have the power to extract either 20 tons of gravel or 20 tons of high-grade gold ore. Which load would you choose?
In your business it takes about the same energy to install a premium comfort system as it does an entry-level heating and cooling system. As the benefits of better comfort increases, so do price and the need for a consultant to justify it. When you add the fact that most premium comfort systems are sold after 4 p.m. and on Saturdays, it’s easy to see why owners and technicians are not in a position to sell premium comfort.
Most contractors fear hiring their first comfort consultant, but shouldn’t. Consider hiring smart people with full-time jobs who want to supplement their incomes by working some nights and weekends. Because their rent is paid and benefits provided by others, many are willing to sell comfort on commission.
It’s not uncommon for good people with the right sales skills to make more money selling comfort than they do at their day jobs. Before hiring, make sure you can secure a registration in the best HVAC industry-specific sales training program you can find.
7. Failure to overcome overhead drag. Nothing affects the bottom line as much as the top line. The larger your production team the greater your profit potential. On the other hand, a business that’s too small is like an underpowered airplane engine. Your limited production power can’t overcome the drag caused by overhead. Your too small business can taxi around forever but can’t take off and reach full profit potential.
Parkinson’s Law states, “Work expands to fill the time available for its completion.” Is this true in your company? Does your installation crew take full days to complete most jobs? One way to overcome overhead drag is to add accessories that make sense to replacement jobs. Because the overhead is already covered, gross profit becomes net profit and the job is still likely to be completed by the end of the day.
8. Failure to build a living business. Positive cash flow is the lifeblood of business. The No. 1 reason businesses die is lack of money to pay the bills. The second reason for early demise is talent size. The business wasn’t large enough to employ the talent required to survive the loss of a key employee.
What would happen to your business if you were injured or couldn’t work for six months? If your business would fail without your direct daily involvement, then you don’t own a business, you own a job.
9. Failure to create business value. Over the years I’ve seen too many fine contracting businesses sold for little more than the discounted value of tools, trucks, and a token payment for a customer list spanning 20 years or longer. It breaks your heart.
If you’re going to be in business anyway, doesn’t it make sense to create a living organization that has value to someone else when you decide to cash in your chips?
When it comes time to sell your business, its value will be determined by earnings. Earnings come from sales. The sales process that generates the strongest, most predictable earnings will create the highest return for your business.
10. Failure to employ the right sales process. Choosing the right sales process can be the difference between success and failure. After 50 years of statistical analysis, W. Edward Deming discovered that every process has a beginning and an end and if the most important 15 percent of the process is implemented correctly, 85 percent of the desired outcome is assured. One of the most important things owners can do to assure the success of their business is to determine the most important 15 percent.
Think of everything your business does as the Master Process: accounting, hiring, installing, servicing, selling, etc. The foundational 15 percent is selling - from lead generation to referral follow-up. The right sales process makes sense to everyone, doesn’t go against anyone’s beliefs, is easy for customers to understand and embrace, provides tools to sell premium products, and is easy to implement, measure, and manage.
Once the right selling process is operating effectively, 85 percent of your other business functions tend to fall into place. When you’re consistently selling premium products at premium profits, accounting is more exciting, hiring great people is much easier, and managing is less stressful and a whole lot more fun.
When I first went into business, I sat next to a very successful older gentleman on an exceptionally long flight. After about an hour of stimulating conversation, I asked his secret to success. He said, “Steve, I make it a habit of studying people who fail in business and then I do everything possible to keep from making the same mistakes.”
Failure isn’t just going out of business, it’s not meeting your goals, objectives, and dreams. If you’re still waiting for your goals and dreams to become realities, review these failure factors then do everything possible to keep from making the same mistakes.
Publication date: 01/29/2007