An Optimistic COVID-19 Letter from Service Roundtable
Matt Michel shares how HVAC companies could grow during this crisis
I tend to be a contrarian. I like to zig when everyone else is zagging. In the midst of all of this coronavirus doom and gloom, I've got a contrarian viewpoint.
I think this could be your best year ever. It could. Really. I'm not just wishing. I have some pretty solid reasons. Read on and I'll explain.
First, how bad is it? Watch the news and you won't want to get out of bed. The media is persistently negative and they are going out of their way to present the news with the most negative spin possible. The reporters and talking heads remind me of the meteorologists right before a hurricane or blizzard. They are reveling in the fact they feel relevant. Pfft.
Even print does it. The Wall Street Journal, which is supposed to be business friendly, runs a headline that proclaims a quarter of the economy is shut down. OMG!!! But wait!
That means 3/4s is up and running. The glass isn't half full. It's 3/4s full.
Sure, restaurants are closed. Planes are empty. Casinos are closed. Disney is shut down. The way the media report it, I thought 75 percent was shut down. But it's just the opposite. 75 percent is up and running!
Yet, this understates things. Morningstar claims 70 percent of GDP is exempt from the government shutdown orders and half of the businesses that are not exempt can continue with remote operations. That adds up to 85 percent.
So really, how bad is it? It's as bad as we imagine it will be, as bad as we expect it to be. If you expect it to be bad, change your expectations. If there is a recession, refuse to participate.
There are good reasons why it might not be bad at all for residential service and residential replacements. In fact, it might even be quite good. Let's consider the reality.
Office buildings are closed while the people who work in them, work from home. They are flushing who knows what down their toilets. They can't buy enough bottled water. They are running their air conditioners without setting back the thermostat and really hot weather is just around the corner.
People do not have to stay home for a service call. They are already home! We've never been so convenient.
Guess what has happened after March 15. Calls, that's what.
We have talked with manufacturers in air conditioning, plumbing, IAQ, water purification, and controls. We have talked with distributors. We have talked with software companies. We have talked with digital marketing companies.
Residential calls surged after March 15! Things were nuts for IAQ and water purification. That's not surprising but both air conditioning manufacturers and water heater manufacturers shipped more product after March 15 than before it. Year over year shipments were up.
That's not supposed to happen. How can that be? Think about it. Retail, food service, and travel all got hammered. Other than the business owners, the people who work in these areas tend to be renters. Most homeowners are still employed. They are employed and working from home. If things are not working in the home, they cannot escape to the office. The water needs to flow. The toilets need to flush. The temperature needs to be comfortable.
Way back in 2008/2009, the economy tanked. That was a financial recession. It was steep. It was long. It hammered the middle class. It hammered homeowners. There were not government grants for small businesses either.
In 2008, we advised our members to double down on marketing. If you think it is going to be harder to find a customer, you need to put forth more effort, more marketing, not less.
The analogy I used was it was like running a long-distance race when a headwind comes up. The headwind slows you down, but if you put forth a little more effort, you can overcome it and run at the same pace. Meanwhile, some of your competitors will give up and sit down. Others will slow to a walk. You can separate yourself from the competitors and build a lead they will never make up. Then, one day, the wind will shift and be at your back and it will feel like you are flying.
The contractors who followed our guidance grew. They didn't just grow. They grew a lot. Some grew 25 percent a year.
We are seeing some of the same things happen in the contracting community now. The digital marketing companies are reporting that searches are up, conversions to calls are up, and advertising prices are down. Your competitors are pulling back, turning turtle. They are disappearing from the consumer's consciousness and making it less expensive for you to become omnipresent in your market through digital marketing.
The marketing companies that listen in on their customers' calls are telling us the questions are different. People want to know if contractors are open for business. They want to know what the contractors are doing to keep everyone safe. Tell them. Tell them you are open. Tell them the precautions you are taking.
Of course, IAQ, filtration, and water purification are big sources of interest. Talk about them in your marketing. Do not retreat. Press forward and you can grow.
Fifteen years ago, 2005 was the single best year in the history of the HVAC industry. In 2005, 8.6 million air residential air conditioners and heat pumps were installed. That was a 16 percent increase from the prior year. This should be a record year for residential replacements in the HVAC industry.
In a month or two, people will be returning to work. Restaurants will be starting back up. Travel will resume. Already, the estimates of damage from the virus are falling. Remember the early estimates that as many as 2 million could die in the U.S. alone? Suddenly, the best-case scenario was between 100 and 200 thousand deaths. A few days ago, the University of Washington's IHME model was updated to show a 13 percent reduction in projected deaths from 93,531 to 81,766. The number of needed hospital beds fell from 262 thousand to 141 thousand, a 45 percent reduction. The projected date when the number of daily deaths falls below 200 was moved up from June 3 to May 18.
Does all of this mean that sheltering in place is working? Or, were the estimates and models wrong? Honestly, who cares for now? I just want to get things roaring as soon as possible.
There is no question there will be some economic damage. Some. Morningstar is now projecting a reduction of 2.9 percent for 2020. Here's what they say in their latest assessment.
"We think the scope of shutdown orders to disrupt the U.S. economy is probably overrated, as large swaths of the U.S. economy are exempt from the orders. Meanwhile, historically large fiscal stimulus should prevent a collapse in the demand side of the economy.
"Overall, we still expect a modest long-run economic impact, with GDP down 0.9 percent. This is much less than what is implied by the 20 percent-plus drop in global equities since February. In our view, a COVID-19 recession doesn't fit the mold of a 2008-style recession with longer-lasting economic impact."
In other words, Morningstar is expecting a V shaped downturn. It will be over quick and recover fast.
For 2020, can you make up a three percent reduction in business? Can you make it up if the competition is terrified and afraid to invest in marketing? Well, yeah!
Considering that 8.6 million air conditioners and heat pumps are due for replacement this year, which is a 16 percent increase from last year, I think this could be your best year ever!
President, Service Nation Inc.