A Business Model For Contractors
During our initial article ("The American Dream," Aug. 30), we acknowledged that life is extremely difficult for most business owners - that is, if they can survive. The issues we discussed are a direct result of being self-employed. This week we will be making the case that the slavery of self-employment is escapable if we build a business. There is a distinct difference between being self-employed and building a business.
In the challenge of building a business, we will have the objective of driving responsibility down into the organization. We will need a template of thinking, a culture that everyone can buy into. Achieving this requires a business model.
To keep the discussion manageable, we will focus on one segment of the HVAC business: residential retail.
It's not that the residential new construction or commercial segments are not important; it's that we need to choose one in order to make the discussion understandable and useful. Even if your company operates in more than one segment, these case studies will apply to the part of your business that is dedicated to residential service and replacement.
Studying The ActivitiesIn the residential retail model (RRM), we generate revenue in four kinds of activities:
1. Demand service.
3. Indoor air quality and accessories.
4. Equipment replacement. (See Figure 1.)
Although these revenue-generating activities need to be done efficiently and effectively, there is a different focus that makes this model work. That difference is maintenance agreements.
We could make the case that increasing revenue does not tell us if a business is growing. History tells us that the most effective way of measuring growth in an RRM company is to measure the growth of maintenance agreements. This is a conclusion borne out of observing over 1,000 companies that serve residential customers in virtually all types of marketplaces in the United States and Canada over a 10-year period.
Several facts now begin to emerge in our effort to help you escape the slavery of self-employment:
There will be other ways the model will assist us in generating a good life for our team and ourselves as we work through the series of case studies together.
Situation 44Let's start off by considering the following case, which shall be known as "Situation 44":
Frank, our lead technician, has been with us for nine years. He is dependable, honorable, technically sound, and has the highest average ticket among our staff of five technicians.
In the course of a day, we are confident that Frank can diagnose and fix anything, and in doing so he almost never generates a lead for the sales staff. In fact, there is bitterness between Frank and the two salespeople, Jim and Barbara. Frank thinks the salespeople are "stealing from the customers" because he knows that he could probably fix most of the equipment they are replacing.
Add to this tension the fact that both people on the sales staff make more money than Frank. The tension has grown to the point where Jim and Barbara do not even come into the office unless they know Frank has been dispatched.
How might you address this situation?
Next month: Discover how companies have conquered "Situation 44" and gone on to generate double-digit profitability with the team intact.
Mondul is a business coach for ISL. He can be reached at firstname.lastname@example.org.
Publication date: 09/27/2004