The Dallas market (as seen through the eyes
“Our basic business plan is built around residential work. Residential work offers a customer base for life. Commercial is more of an ‘instant’ market.”
On the other hand, the business plan for commercial contractor Brandt Engineering Co. includes going after the big accounts and competing against some familiar names.
“We are competing with manufacturers . . . for service work,” added Brandt executive vice president Barry Moore. “The industry is changing so much that one day you are somebody’s customer and the next day you’re their competitor.
“Some of the manufacturers are getting much more aggressive. Our advantage is that we don’t have to push a particular brand, just the best solutions.”
Two different companies, two different approaches to the Dallas market, yet both are very successful at what they do.
AxonLong before the age of hvacr consolidation, there were many examples of contractors who acquired and merged similar businesses to form a “mega company.” Today this scenario is exemplified by national companies such as ServiceMaster, and regional companies such as R.S. Andrews.
A Dallas contractor is emulating this trend, only on a more private level. Axon, a service company based in Dallas, wears many different hats when it comes to helping its customers. The list of services includes plumbing, hvac, electrical, refrigeration, and lawn sprinklers.
In 1984, The Hart Group, headed by Mitch Hart, formed Axon with the purchase of several different service companies. Hart had a dream of going nationwide with this multiservice company.
Don Walker came on board three years ago to help run the business.
“When I came in, we were doing 65% new construction and now we’re doing about 98% service,” said Walker. “We looked at the new construction work and saw that it wasn’t too profitable.
“We took the idea of going more into service to the Harts, and they liked it. We’ve increased our revenues every year since then.”
Walker is supported by top executives Greg Whitten and Lynn Price, whose company was bought out in 1998 by Axon. Whitten runs all of the residential branches of the hvac department, and Price oversees the entire hvac portion of the company.
Today, with 180 employees, the company is split 60-40 between residential and commercial work. It recorded $13.5 million in sales in 1998, and averages 6,500 service calls per month. Axon has three other offices in Texas, in Lewisville, Plano, and Fort Worth.
Its market mix and sales volume makes it a nice target for acquisition, and consolidators have been aiming a steady stream of arrows in its direction.
“We’ve had many offers,” said Walker. “GroupMAC and ARS both came to us before they went public. The people [Harts] who have put this company together are not in it for the money.
“We are already run very much like a public company,” he added. “We have to have a very detailed marketing and business plan. We have to make projections every month and produce cash statements every week. The Harts are used to dealing with the complexities of running a big company.”
Tackling the issuesIt’s no surprise that the number-one issue facing management at Axon is finding qualified workers. This broken record plays out in most of the regions of the country.
Axon acquired three companies last year, and one of its motives was to add more techs.
Axon tries to recruit through a variety of media including the Internet, radio, and by using signs on company service vehicles.
The Dallas area has technical training readily available for would-be technicians. “Eastfield College in East Dallas has a good selection of ongoing courses,” said Price. “ACCA courses are also some of the best, too.”
Walker thinks the training required to become an hvac service tech is different from other, “older” trades, like plumbers and electricians.
“When you see a plumber come to your door, you know he normally has been through a four-year apprenticeship; the same with an electrician,” Walker said. “When you see an hvac tech, you don’t know if this person is a journeyman or has had the same amount of years in training for the job.”
Walker said he feels that the best tech is a homegrown tech. Axon pays for its employees’ apprenticeships, and encourages generic training rather than manufacturer-specific training. The company also tests for aptitude and customer relations skills.
“You can be the best tech in the world, but you have to know customer service,” he said.
Another issue important to Axon is utility competition. But Walker is waiting to see what role the utilities will play in the market.
“I don’t think the real consolidators are here yet. As soon as the consolidators get up to a billion in sales, somebody like a Sears or a utility will step up and acquire them.”
Just be preparedIn the meantime, Walker said he isn’t going to fret over something he cannot control.
“Some contractors are consumed with worry,” he said. “They still have to put together a business plan and that is what we are focused on. We work on the positives.”
One of the positives that Walker did was to join Excellence Alliance Inc. (EAI). He likes the ideas and business plans EAI shares with its members. He also sees the timing of EAI’s emergence as extremely important.
“There are so many companies that don’t have business plans or operation manuals and EAI helps out,” he said.
Walker welcomes the coming of consolidation to the Dallas area because of what it means to people like himself.
“Personally, I think they’re great for a guy like me,” he said. “In the past, a person who sold his business had a hard time finding something else to do in this industry because there was no upward movement. Now it gives middle management people a place to go.”
While keeping an eye on the hvacr landscape, Axon is busy setting goals of its own. Walker said he would like to see the company expand into five states and focus more on commercial service. He keeps a close eye on customer retention, knowing full well that it is tough to expand, let alone retain, the existing base.
“We chart our new customer growth,” he said. “You need a 30% customer growth rate to make up for lack of retention.”
Axon’s growth rate suggests that it does a good job of customer retention. Last year it projected a 24% growth rate, and had to settle for a 38% increase.
Brandt EngineeringLike Axon, Brandt Engineering relies on service branches in several locations. Their ability to blend in with the communities they serve has put them in the fast lane in the Dallas area.
The company, whose markets are in commercial, institutional, and industrial service and construction, had sales of $28 million in 1995. Three years later, in 1998, its combined branches in Dallas, Fort Worth, and San Antonio reached $60 million. The staff totals 350.
“We bought the company in 1995 when the construction industry was starting to boom,” said Barry Moore. “They say timing is everything. Business has flattened a bit in the last few months, but we’ve still grown by over 100% in three years.”
Brandt has positioned itself to compete with some of the larger industrial contractors in the region, as well as a few national manufacturers.
Moore said that the issue of competing against the “big boys” is one that faces many contractors. He said that some contractors believe the only way to compete with these companies is to align with a consolidator.
“A larger company on a national basis can more favorably compete with a national equipment manufacturer or a controls company,” he explained. “That’s one of the considerations when you think about joining a national consolidator.”
Moore had plans to join with the Enfinity Corp., an energy services provider and would-be national consolidator, before Enfinity decided to back off on its IPO (The News, Jan. 18).
“We’ve been approached by virtually everybody out there,” said Mark Zilbermann, Brandt president. “GroupMAC approached us, but they acquired a couple of open shop contractors [including Trinity Contractors, featured in Part 1], and since we are a union shop, they backed off.”
“Now we’ve decided to stay independent and try and get better,” said Moore. “We had the opportunity to create something special with Enfinity because of our bond with the other companies involved. We would be less inclined to go with a public company now, since we have seen what is involved with putting together a Wall Street company.
“We’ve been inside the sausage factory and we know how they make that stuff.”
Both men are in their mid-40s and they don’t plan on going anywhere for a while. They enjoy owning and operating the company. Although neither has any family members involved in the company, Zilbermann previously worked with his father at Brandt before it was sold. He eventually bought it back in 1995. Moore learned his trade from The Trane Company.
The service sideOne way both men want to improve their business is by focusing on the service side. They plan on stressing professionalism and communication in their service department, which they hope will complement their successful construction projects.
“We’ve done a lot of work for universities lately,” Moore said. “We’ve worked with Texas Christian University on a design-build project.
“This type of project was driven by the fact that a lot of colleges and universities have not put money into their infrastructures in the last 20 or 30 years. A lot of the existing equipment is old and maintenance costs are high. These colleges are able to see that upgrading will save them money.”
Brandt is also playing a key role in the construction of a new stadium at Southern Methodist University, which is a plan-and-spec project. Although 40% of its work is negotiated, the Brandt philosophy is that in order to compete, it has to keep active in the competitive bidding field.
Some of the company’s larger, well-known customers include Exxon, Trammel-Crow, Alcon, Federal Express, and Peterbilt. Eighty-five percent of its work is in the Dallas/Fort Worth area.
Finding help and working with utilitiesBrandt hasn’t felt the brunt of the evaporating pool of qualified talent in the area. The main reason is its union status.
“Being a union contractor has made it a little easier to find qualified field technicians,” stated Zilbermann. “But we have noticed that the caliber of people entering apprenticeship programs is not as good as it used to be. We’re doing some recruiting here.”
Zilbermann said that his company has had to go to some of the local technical schools to find students who are interested in working as technicians. If that doesn’t work, “We try to hire them from someone else,” he added.
Being a union shop makes it a little tougher to compete commercially on some types of jobs, according to Moore. Most of its industrial competitors are union shops, which keeps the playing field level, but Brandt is only one of a few union commercial contractors.
“We’re union because it makes sense,” said Zilbermann. “We’re not trying to sell the cheapest price, we’re selling value and quality. This is an opportunity to get well-trained people.”
“One of the first jobs we got after buying the company was a central utility plant for Hitachi, a $10 million job,” added Moore. “We needed to add 100 people in the field and because we were union, we were able to get the people. That would never have happened for us at that time if we were an open shop.”
Brandt has been keeping a close eye on the utilities in the area — so close, in fact, that one of its customers is a utility company.
“One of our best customers is TXU, whose integrated subsidiary Integrated Solutions is building a cooling plant,” said Zilbermann. “If you’re good at working together, a utility can be your best customer.
“We don’t know what’s going to happen down the road, but right now they are a good customer.”
“We’re watching them like we are watching everything else,” said Moore. “But it is kind of hard to do, because you want to keep an eye on your own business.”
Moore said he is counting on his employees to give Brandt a competitive edge, regardless of what happens down the road. He hopes to sharpen up the sales and marketing part of the business. “Customers are more sophisticated and how they procure things varies. They are more demanding than ever.”
Both Moore and Zilbermann believe that changing business philosophies would be like trying to fix something that isn’t broke. Zilbermann summed it up.
“We don’t have to be a national company to be successful and competitive.”