It’s sad to say, but economic uncertainty has become the norm. A bursting bubble here, a fall off the cliff there, and before too long we grow callous to even the most stimulating of stimuli. Most HVAC contracting and service companies are relatively small affairs as compared to the world of large corporate businesses, but as with any business, we need to think strategically.


At our company, Capstone Mechanical, we have used the strategy of diversification as a way to gain access to more work. Through diversification, we’ve actually tripled our business since 2008.

First, we looked at diversifying our customer base. At the end of 2008 it was obvious that the private-sector construction work that we had thrived on was headed for a screeching halt. It also became clear that, for better or for worse, the federal government was going to attempt to stimulate the economy through massive spending — much of which included construction projects. At that point our company had done very little federal work but we knew we needed to adapt quickly before our existing work load ran out. We sent one of our sales engineers to canvas the local federal installations to build relationships and learn of future job prospects. Within a couple of years we were picking up enough federal work to replace the private work and actually keep the company growing. This didn’t come without headaches as we learned that federal contracting has added risks, but the risk was worth the reward of having profitable work to execute.

Finding new market segments is one way to diversify your business, but it’s not the only way to slice the pie. Here are five other good ways to diversify:

1. Grow Geographically: Look for opportunities in the towns and cities around you. Often times there is a “honey hole” close by with less competition and higher margins. Depending on the distance, try bridging the range from your current base of operations before investing in a local presence.

2. Add Complementary Services: Many residential companies add services like whole-home energy consultation, weatherization, and insulation contracting. Customers appreciate the holistic approach and it will increase your total sales amount per customer.

3. Add Complementary Construction Trades: Adding construction plumbing, pipe fitting, fire-sprinkler installation, controls installation, or electrical contracting can increase the slice of the pie you get out of the limited number of jobs that are available. If you have strong relationships with your general contractors they might see this as a huge positive because it limits their exposure by giving more of the job to a trusted subcontractor.

4. Add Complementary Service Trades: Plumbing and electrical service often go hand in hand with HVAC services. You have already invested a lot of time and money to create your customer base, why not leverage those relationships by adding more services? It can be challenging finding the proper people to hire or the right business to acquire as an entryway into a new trade, but, once established, you’ll have a core competency that will open new doors for you.

5. Look at New Market Segments: Many times, our expertise in one market can carry you into a new market segment. A commercial HVAC construction company will often have the in-house talent to dive into the industrial markets with success. It will take someone being dedicated to go out and grow relationships with your local factories, but once you’re in the door, the work will often keep flowing. Industrial clients will find a contractor they trust and keep them busy with a steady stream of work from the typical churn that occurs in factories. There’s always maintenance to do, lines to move around, new equipment to install, and a backlog of projects.

The process of diversification gave us the ability and the confidence to take on new challenges. Our company benefited by shifting into government contracting in 2009, but now we see a steep decline in federal-construction spending. That’s not a problem though because we have been strategically growing relationships in other market segments like medical and institutional. Additionally, we’ve grown our geographical footprint and added additional trade specialties. These strategic moves don’t make us bulletproof to all economic uncertainty, but they do greatly increase our odds of maintaining success. By diversifying our products, services, trades, markets, and customers, we’re giving ourselves a fighting chance for whatever the uncertain future holds.

Publication date: 4/15/2013