A Winning Hand
But fast-forward to 2002, and the story becomes very different. More than 1,500 contractors came Oct. 20-23 to Las Vegas for this year's 59th annual convention, making it one of the best-attended conventions ever, said SMACNA public relations director Rosalind Raymond.
"This convention rivaled our 57th annual convention that was on the 'Big Island' in Hawaii," Raymond said. "Everyone just loved it."
Raymond added that many attendees felt this year's educational programs were especially strong. Also proving to be a major draw were the convention's guest speakers: former U.S. Secretary of State James Baker, international business expert Jeffrey Rosensweig and "Tonight Show" host Jay Leno, who performed at the closing dinner Oct. 23.
Also popular with attendees, Raymond added, was the Oct. 22 product show. For the first time in many years, exhibitors had the option of bringing machinery with them, and several companies took SMACNA up on the offer.
The convention opened Oct, 20 with guest speaker James Baker, a Cabinet-level advisor to two U.S. presidents and a native of Houston, told attendees that he was "from a city that stands as a monument to the air conditioner," and thanked the contractors for being in the air conditioning business.
From there, his talk turned more serious, with Baker answering questions from attendees about the prospects for war with Iraq and recovery for the U.S. economy. His opinion? War is all but inevitable, and it will affect the speed of the economy's recovery, but it is absolutely necessary for the long-term stability of the Middle East and the U.S.
The economy was also on the mind of business expert and author Jeffrey Rosensweig, who spoke at the Oct. 21 luncheon. Rosenweig holds a master's from Yale University and a doctorate in economics from Massachusetts Institute of Technology. He told SMACNA contractors that although he doesn't see the U.S. suffering back-to-back recessions, he predicts a really strong recovery will not occur until 2004.
Business forumsIn between the opening and closing ceremonies, attending business forums was the main activity for SMACNA members. At the Hvac Contractors Forum Oct. 21, management consultant Thomas C. Schleifer told attendees that the industry is in the early stages of a consolidation shake-out, and he predicts that up to 20% of today's midsize contractors will cease to exist within the next two decades. The reason for this, he says, is technology is changing the way the construction industry - including hvac contractors - works and is perceived by corporations and the public.
Construction is becoming a global business, Schleifer said. "When I started out 30 years ago, construction was a local business," he said. Today however, he added, it is very often not local and is quickly becoming a commodity in the minds of many business owners.
Scheifer compared the changes the construction industry is experiencing to those that happened to grocery stores more than 40 years ago. For decades, the corner grocery store was a small, neighborhood-oriented, single-owner establishment. Everyone knew the owner, and he knew his customers. However, with the rise of grocery chains, that all changed, Scheifer said.
He recalled that at the time a large grocery chain moved into his childhood neighborhood, his father was convinced it would fail. "They'll never make it. A person needs to know his grocer," Scheifer remembered his father saying at the time.
But the chain store didn't fail, and today, the single-owner grocery store is all but dead. The same change is happening to the construction industry. Many of the firms that disappear will not even be noticed, and less labor will be needed.
"Technology will so change our methods and production that skilled labor will be less of an issue," he said.
Another change affecting the contractor: Construction projects are getting bigger. Scheifer said the average size of construction projects in the U.S. has doubled in the last five years. And while high-profile projects may appear to be good for the U.S. economy overall, Scheifer said they're not so great for the small and midsize contractor.
As the size of construction jobs increase? it cuts out the small to midsize contractor."
Architectural industry insightsAt the Architectural Contractors Forum on Oct. 21, SMACNA invited several architects to discuss ways they could work together better with contractors. Architect Rex Evans told attendees that many designers rely on the information provided by SMACNA, and they regularly look to SMACNA manuals for guidance. However, Evans said, contractors may find architects more demanding than they've been in the past.
"We've become very careful about what we want exposed to the public and what we don't," he said.
That doesn't mean that architects are inflexible, added architect Nicholas Antrillo. "If you want to do something differently, all I ask is that you point it out" and explain why, he said.
"We try to be as through as we can, but we don't know everything about your industry," Evans added.
Tampa, Fla. contractor John Morrell, owner of Morrell Sheet Metal Inc., told other contractors to reach out to the American Institute of Architects for assistance, and job oppotunities. "You should be intermingling with the AIA chapters in (our) areas," he said. "That's what's going to get your phone ringing."
Members also discussed recent changes to the sixth edition of the "SMACNA Architectural Sheet Metal Manual."
Fabrication challengesThe Oct. 21 Custom Fabricating and Manufacturers Forum discussed the theme, "Developing and Maintaining a Positive Custom Fabricating and Manufacturing Environment."
Bill Blazvick, of Royal Metal Works Inc., Las Vegas, is the incoming chairman of SMACNA's Custom Fabricating and Manufacturing Council Steering Committee.
According to Blazvick, operating a custom fabrication shop is much different than running an hvac business. Where the customers of an hvac contractor are relatively tied to businesses in their geographic area, this is not always true in fabrication.
"We need to stay competitive with all the other fabrication shops, including non-union companies in other states." He said customers will go where they get the best quality for the best price.
Quality is still a primary consideration for customers. "Inferior products are not tolerated." He said he keeps his guys trained, including spending the money and time on in-house training, especially during slow times. He tries to lower costs on material handling and fabrication processes, areas where quality will not be affected.
Kim Martin, of Tarpenning-LaFollette Co., Indianapolis, is the outgoing chairman of the steering committee. He works with the Joint Apprenticeship and Training Committee in Indianapolis. "They spend three years on the basics, and then they specialize," he said of the group. Half the attendees are from the hvac sector. When it comes to specialized areas, such as grinding and polishing, Martin said must rely on his own resources to make sure that workers have the training they need to perform well in fabrication.
Another panelist agreed, saying that most specialized training must be done in-house if it is to be done at all.
"We pay a lot for (third party) training facilities that we don't always get an adequate return on," he said. "We use very complicated equipment, and when you get someone who is good, you want to keep him, even when business is soft."
Ted Kuczynski, of the International Training Institute, was attending the forum and said his organization was doing what it could to meet industry needs. "About 50% of welders are retiring in the next five to 10 years," he said. "We know there is a great need for trained people to replace them."
Kuczynski said ITI is changing to a core curriculum that students take for two years before they begin to specialize in other skills. ITI also has an instructor training program for a contractor's key employees, who can then go back and train the rest of the workforce. "We will work with you to meet your needs," Kuczynski said.
Profit strategiesOn Oct. 22, Robert A. Langdon, CPA, addressed SMACNA members of "Effective Ways to Immediately Improve Your Bottom Line," using his book "Managing Your Business for Profit" as a guide.
According to Langdon, there are three routes to increased profitability: increase sales, increase the gross margin, and reduce expenses. The third, expenses, is most controllable by management and reducing expenses automatically increases the gross margin.
Langdon focused on "shrinkage expense" as an area where costs must be controlled carefully. Although "shrinkage" is often defined in the retail sector as a euphemism for theft, it has a broader meaning in a contracting business.
"I define shrinkage expense as a reduction in economic value which occurs in a business because of poor management," Langdon said. In other words, any action or inaction by management that allows value to disappear from the business affects the bottom line.
Langdon demonstrated how even a small amount of shrinkage can significantly affect profitability. For instance, a company that operates at a 3% net profit must earn $33.33 to cover $1 in shrinkage. He gave specific examples of incidents that can be difficult to overcome.
An average SMACNA contractor that operates at a 2.7% net profit margin needs sales of $13.70 to cover the loss of a 37-cent postage stamp. The effects add up even quicker when the loss is larger.
A $100 tool theft requires sales of $3,704 to offset; damage of $500 to materials requires sales of $18,519; a $1,500 uncollected bill requires sales of $55,556; a $4,000 inventory shortage requires sales of $148,148; and a $15,000 error in bidding a job requires $555,556 in additional sales to recover from the loss.
Langdon recommends calculating your company's break-even point as a useful economic analysis. Break-even shows how much sales volume a contracting business must generate to earn a profit of zero.
"To conduct the analysis, expenses must be divided into two categories: fixed and variable," Langdon said. "Fixed expenses are those that stay practically the same over a relevant range of sales volume. Variable expenses are those that change in direct proportion to changes in sales volume."
To calculate break-even, subtract the variable expense percentage from the gross margin percentage. Divide fixed expenses by the resulting percentage.
For example, assume that a business has fixed expenses of $50,000 per month, a 23% gross margin, and 12.35% variable expenses (of total sales).
23% minus 12.35% equals 10.65%. $50,000 divided by 10.65% gives the answer. The business must have $469,484 per month in sales volume to break even.
If you are interested in making a profit, and not just in breaking even, then there is one more step to the equation. After you have subtracted the variable expense percentage from the gross margin percentage, also subtract the profit goal percentage (of total sales). Then divide the fixed expenses by the result.
Using the previous example, the 10.65% would be reduced by the profit goal percentage, say 3.24%. This result is now 7.41%. Dividing $50,000 in fixed expenses by 7.41% shows that the business must have $674,764 per month in sales volume to earn a 3.24% profit.
Looks countThe hvac service market is not looking good, at least judging by the appearances of some of the technicians out there.
Those were among the comments of attendees at the Service Contractors Forum Oct. 22. Hvac industry consultant Tom Piscitelli told attendees that customer service all comes down to relationships and appearances, which, he added, aren't usually favorite topics of most in the male-dominated hvac industry.
"Guys don't usually embrace this concept of 'relationships,' " Piscitelli said. However, building an effective customer relationship is key to success in almost any industry, he told contractors.
"People are eight times more likely to buy from someone they've bought from before," he explained.
And especially in the case of residential replacement work, you have to offer trust, peace of mind, and prove that you care. In addition to performing quality work, you do this by ensuring that your technicians are well dressed, friendly and on time, Piscitelli said.
He told attendees of one contractor he knows who puts on surgical gloves before replacing a wall thermostat. It helps keep the homeowner's wall clean, but more importantly, it shows the contractor cares.
Some contractors suggested Piscitelli might be asking too much.
"Out of 17 guys, I only have six techs who are friendly and like people," one New York contractor said, eliciting laughter from the audience. "(And) I have one guy who looks like he's homeless, but he's asked for the most."
New directors, officersSMACNA elected five members to serve four-year terms on its board of directors. They are: Frank Babbitt, Mallory & Evans Inc., Scottdale, Ga.; Dennis Berger, Ventcon Inc., Allen Park, Mich.; Robert Gawne, Stromberg Sheet Metal Works Inc., Beltsville, Md.; Joe Toso, Tri-Metal Fabricators, Delta, B.C., Canada; and Kevin Yearout, Yearout Mechanical & Engineering Inc., Albuquerque, N.M.
Frank Babbitt has served as a member of the national Convention Sponsorship Task Force and the Director Nominating Committee. Locally, he has served as president of Georgia-SMACNA five times.
"My involvement with the association, at both the local and national level, has provided me with a background that I feel will be an asset to the national board," Babbitt said. "I will work diligently toward bettering SMACNA and the benefits the association offers our members."
Dennis Berger, a past president of the SMACNA Metropolitan Detroit Chapter, currently serves as the chapter councilor to the SMACNA Council of Chapter Representatives.
According to Berger, "I have personally grown and developed through SMACNA and with more than 40 years of experience in the industry, I believe the knowledge I have gained will be of value to the board of directors. I believe it is important to give back whenever possible and I would like to give back to an industry and association that have given me so much."
Robert Gawne is a past president of the National Environmental Balancing Bureau, as well as a former member of SMACNA's Testing, Adjusting, Balancing Council Steering Committee.
"I have been fascinated by the changes and the technical advances in my career but most of all managing people and seeing them find their true potential has been and still is rewarding," Gawne said. "I hope that my experience will be helpful to the board."
Joe Toso was appointed to the board in 2001 to complete a vacated position. A long-time member of the British Columbia Sheet Metal Association board of directors and executive committee, Toso has served as chapter president as well as all the other office positions.
According to Toso, "SMACNA is an important source of technical, management, safety and labor information. I feel that my time will be well spent making a contribution to the association."
Kevin Yearout serves as a member of the national Budget and Finance Committee, Labor Committee, National Joint Adjustment Board, and a SFUA Article X panelist. He is a past president of the New Mexico Sheet Metal Contractors Association.
"Keeping SMACNA strong and moving in a positive and proactive direction is the best thing we can do to provide a solid future for our companies," Yearout said. "I would like to be an active participant in our continued success."
A new leaderJack Desmond, of Cox Engineering Co., Canton, Mass., was elected to serve as SMACNA president.
A member of SMACNA's board from 1995 to 1999, Desmond is vice-chairman of the Budget and Finance Committee as well as a member of the Investment Committee, International Training Institute Technology Delivery Task Force, and the National Energy Management Institute International Certification Board.
"Recognizing what we deeply value about SMACNA will enable us to preserve the association's purpose and vision," Desmond said. "Building on this valuable exercise during my term as president is one of my goals for the coming year.
"We will continue to elevate our position in the construction process, to show the performance value a quality sheet metal and hvac system adds to projects. We will continue laying the groundwork for making our industry a known, viable career option for the best and brightest young job entrants," Desmond said.
Desmond has previously served as chairman of SMACNA's Technical Resources Committee and as a member of the Strategic Planning Committee, Multi-Service Chapter Application and Selection Committee, Director Nominating Committee, and the Products and Programs Coordinating Committee. He has also served on the Consolidators Task Force and as a member of the National Energy Management Institute board of directors.
Locally, Desmond serves on the board of the Building Trades Employers Association. In addition, he is a trustee on the Annuity Fund. A past president of SMACNA Boston, Desmond served as chairman of the Industry Promotion Fund and the local Joint Apprenticeship and Training Committee as well as trustee to the Health and Welfare Fund. He also has served as chairman of the Northeast Sheet Metal Contractors Council.
Mark C. Watson, of Climate Engineers Inc., Cedar Rapids, Iowa, was elected to serve as president-elect.
A member of SMACNA's board from 1995 to 1999, Watson is chairman of the Multi-Service Chapter Application and Selection Committee and serves as a member of the Investment Committee.
He is a former chairman of the Budget and Finance Committee, the Business Management Committee, the Convention Committee, the Investment Committee, the Change Orders Task Force and the Marketing Task Force. Watson has also served as a member of the Strategic Planning Committee, the Products and Programs Coordinating Committee, and the Convention Sponsorship Task Force.
A past president of Sheet Metal Contractors of Iowa-Cedar Rapids, Watson currently serves as a trustee on the chapter's Health and Welfare Fund and Pension Fund. He also has served on the chapter's Bargaining Committee.
Kevin Harpring, of Harpring Inc., Louisville, Ky., was elected to serve as secretary-treasurer.
A member of the board from 1996 to 2000, he currently serves as officer liaison to the Products and Programs Coordinating Committee and the Technical Resources Committee. In addition, Harpring serves as chairman of the Investment Committee and the Budget and Finance Committee as well as a member of the Employee's Pension Plan Trust and International Training Institute Board of Trustees. A former chairman and member of the Safety Committee, he also served on the ITI Technology Delivery Task Force and as a trustee to the Industry Fund of the United States.
At the local level, Harpring has served as secretary-treasurer, vice president, president, and chairman of the Kentucky Sheet Metal Contractors Association board of directors. He also served as chairman of the Education Fund Trust and the Industry Fund Trust, as well as chairman of the Eastern Regional Conference planning committee.
Keith E. Wilson, of Miller Bonded Inc., Albuquerque, N.M., was elected to serve as vice president.
Wilson currently serves as a member of the Budget and Finance Committee, as well as a NEMI Committee trustee. A former member of the SMACNA board, he also served as a member of the Technical Resources Committee, High Performing Contractor Task Force, the Electronic Media Task Force, the Consolidators Task Force, the SMACNA Testing and Research Institute Task Force, the NEMI/NEMIC Marketing Committee and as a SFUA Article X Management panelist.