Small Shops Can Compete With the ‘Big Boys'
So, how do the “little guys” survive and thrive?
“We don’t do oil. We don’t do commercial. We don’t do boilers. We don’t do plumbing,” explained Vince DiFilippo, owner of DiFilippo’s Service Co., Paoli, PA. “The way we compete against all other larger companies is that we have made our niche. We specialize in gas and heat pump hot air systems.”
DiFilippo certainly falls in the “small shop” category. He has four technicians and himself. The company services 3,000 clients and operates within a 12-mile service radius. To keep ahead of the game, he said he monitors customer feedback, especially those who have switched from larger companies to his company.
“We listen to customers as to what they want by surveying them every year. And service calls are done the same day the customer calls,” said DiFilippo. “The way we excel against the big boys is doing things they don’t do. We constantly monitor the complaints from new clients who switched from the big boys.”
He added, “We have bi-weekly staff lunch meetings to discuss client satisfaction issues and new programs. We pride ourselves on keeping the trucks stocked, which results in a 98% completion rate on our first visit.”
CUSTOMER SERVICEIn DiFilippo’s estimation, providing good customer service is a must for the smaller shops.
“We all have access to the same information, but the big boys use it differently. They can’t concentrate on the small details that we can. When you’re small, every tech matters, every client is important, every employee suggestion is heard, every phone call is important, etc.
“A larger company will throw away clients if they complain. If they lose three or four clients a week, it doesn’t matter to them. They figure they will get them back next week — or so they think.”
Like DiFilippo, Paul Pollets believes niche marketing is the way to go for the smaller shops. Pollets, owner of Advanced Radiant Technology, Seattle, WA, has a five-person crew.
“By niche marketing our services and specialty skills, we are seen as specialists, despite our size,” he said. “Clients can immediately access the technical expert as well as the billing specialist.
“Larger mechanical firms do not specialize in our niche market — yet. Larger firms are often forced to take work, regardless of the profit, to support the payroll and overhead costs.
“Since the tasks of our work involve both electrical control knowledge, pipefitting and plumbing skills, we orient to hire specialists in each trade, then cross-train.”
David Sweet, of Koolco, Inc., in Wakefield, RI, said response time to customer needs should be better in a smaller company.
“It is much easier to get in touch with the owner in a smaller company than a large company,” he said. “When there are fewer techs, it is less likely that difficult service problems will fester because the owner will know sooner and take action.
“Small companies tend to do business in a smaller [geographic] area, so their response time should be quicker. Also, changes in inventory, billing, or other procedures are easier to change with small companies.”
THERE ARE DRAWBACKSBeing small and being in a close-knit community can have its drawbacks. One bad experience and word-of-mouth can spread like wildfire. That’s why DiFilippo is always ready to “put out the fires.” In his estimation, “Small companies are very ethical.
“We cannot afford to be badmouthed across the area,” he explained. “We offer a two-year parts-and-labor warranty on all of our work and flat-rate pricing. If we make a mistake, we own up to it.”
Pollets said small shops can excel in performance contracting, which is highly profitable “if they hold all of the cards.
“If you don’t have the background to estimate, sell, schedule, and service — or if your small crew can’t install, wire, or troubleshoot the goodies in a timely manner that pleases your customers — you could be in deep doo-doo,” said Pollets.
Pollets also believes the labor advantage goes to the larger companies.
“The disadvantage to a small shop is that the tight labor market makes it hard to find quality mechanics. If one decides to leave [the small contractor], there is no reserve or pool of talent.
“Another downside is the estimating, sales, and project management usually falls into the lap of one person, which tends to make extreme time demands on that person.”
Because of the labor advantage, DiFilippo believes small firms should pay attention to their employees. He says he pays top wages, provides uniforms for two seasons, jackets for three seasons, coveralls, paid health and dental, $80 paid to be on-call, time-and-a-half for all invoiced hours, bi-weekly training, bi-weekly staff lunch meetings, “and much, much more.
“We take care of our employees,” he said, believing it’s essential in a small firm.
Leveling the Playing FieldPhil Favret, owner of Favret Heating & Cooling, Columbus, OH, sees technology — affordable to small and large contractors — as a way to compete on an equal basis.
“I feel the biggest improvement to level the field has been technology — more specifically, voice mail and two-way radios [Nextel],” he said. “This has increased efficiency by allowing contractors to get more done in a timely and professional manner. Computers also allow for more efficient and professional customer invoicing, job pricing, and inventory tracking.
“Websites and e-commerce will be the next thing to allow all contractors to put inexpensive, comprehensive, and professional advertising in front of their customers. E-commerce will improve efficiency of checking availability and pricing of parts and equipment. The computer has also allowed more in-house advertising to be done at more reasonable rates, such as newsletters and postcard reminders.”
Robert Salisbury of C-AIR-S Mechanical, Houston, TX, said that competitiveness relates to being organized and there are two areas he said are tantamount to any organization.
“I emphasize accounting and estimating,” he said. “To do these items effectively, you need to be in the computer age, but not an expert.
“For accounting, I have used Peachtree and Quick Books. Both programs can be purchased for a couple of hundred dollars. I have always felt it was important to stay on top of job costs, receivables, and payables. You can’t do that without a computerized accounting package.
“To the best of my knowledge there are no estimating programs that are inexpensive, easy to use, and accurate. So I collaborated with a programmer friend of mine and we’ve been making one.”
Salisbury added that having good accounting and estimating programs puts contractors in a good position, no matter what their size.
“If your company is competent and you are organized, it’s really not hard to compete. Small companies can do just as good as larger companies with the exception of the size of the project they can bid on. But smaller companies have less overhead and consequently a higher profit margin.”
Sidebar: David and Goliath Size Each OtherUpDennis Bond, general manager of Frymire Engineering Co., Dallas, TX, believes large contractors have many advantages over smaller ones.
“We have an advantage in some things because of our size and the number of employees we have,” said Bond. “From a cash flow perspective, we can take advantage [purchase] of some of the new technologies in the marketplace that small contractors can’t.
“I don’t think the smaller companies really take advantage of their size when going against a company our size. The way they beat us is to offer a cheaper price because their overhead is lower. Consequently, they cause us all not to make as much money as we could.”
Vince DiFilippo would argue against that assessment. The owner of DiFilippo Service Co., Paoli, PA, said he prices a job with a $120-per-hour labor rate and $60 dispatch fee. But Bond believes that price should not be an issue.
“I think as long as you have small competing against big, small will think only about the price,” he said.
One contractor employee, who asked to remain anonymous, gave the perspective from all points of view — from a small shop where he was the service department to a super big contractor owned by utility-giant Conectiv.
“Bigger is better? Not!” he said. “It has the advantage of all the latest gadgets and service techs have the luxury of asking helpers to carry a 30-gal electric water heater into the groundfloor utility closet. But it’s a lot like working for Burger King. You’re so big that you and the customer alike become just another number.
“But small also has its drawbacks. You may have a great relationship with the boss and customers, but if you’re in a two-man shop and you get the flu, there goes 50% of the workforce.”
The bottom line? Bond said smaller and larger companies should look to making more profits and worry less about undercharging the competition.
“The hvacr industry is one that still needs to get current and realize that we are worth more than we charge,” he said.
Publication date: 01/29/2001