Times are a-changin' in the HVAC industry (part III)
May 5, 2006
This is the last of Jim Olsztynski's three-column series on changes in the HVAC and sheet metal industries. Part two ran in the April issue of SNIPS.
Don't be surprised if another round of consolidation occurs before long, although it may look different than last time.
I've become aware of a few entrepreneurs without trade backgrounds who are buying up plumbing companies on a regional basis. There's nothing romantic about the plumbing industry to them. They simply see plenty of profit potential in the business.
Instead of being driven by Wall Street greed, the new wave of consolidation likely will be motivated by the business stability and steady profits obtainable by well-managed HVAC and plumbing businesses. The consolidations may begin at the local and regional levels rather than with a national splash, but eventually I think we'll see larger companies assert themselves in the marketplace.
I say so simply as a starry-eyed believer in our free-enterprise system, and its uncanny ability to fill marketplace vacuums. Our modern, fast-paced society requires better delivery of contracting services than the public now endures. Eventually, clever entrepreneurs will figure out how to make good money fulfilling that need.
This is not to say independent companies will disappear. A small shop can go along indefinitely if it sets its goals low enough.
No entrepreneurs here Most HVAC and plumbing companies do not get started by "entrepreneurs," but by people fed up with lousy jobs. Their business skills are primitive to nonexistent, yet the market for their services is so vast, almost all can generate enough work via lowball prices to earn a modest living. Keep in mind that plumbing or heating and air-conditioning services are in demand by every home and building owner in the country about once a year on average, frequently on an emergency basis. People from most other industries would salivate over such demand.
Yet, small shops are increasingly disadvantaged in competing for all but the most price-sensitive business. Most customers don't care whether they do business with a neighborhood shop, a franchise, a utility, or Home Depot. They only want to be serviced by a firm that delivers the best value with the fewest hassles.
Neighborhood shops supposedly have an edge when it comes to friendly, personal service. That's more myth than reality. Such companies are where callers are most likely to be greeted by answering machines and grumpy voices returning phone calls days after they are made. If you're looking for homey charm, you're more likely to find it in one of the larger companies with trained customer-service personnel. You'll also get more efficient service, thanks to modern dispatching software and trucks crammed full of repair and replacement parts.
One of the most encouraging developments for service contractors over the last 10 years or so has been the rise of affinity groups that have raised the bar of professionalism - Nexstar, Service Roundtable, Excellence Alliance and others. These organizations offer superb business and marketing tools and best-practices networks. Contractors who belong to these organizations usually aren't the ones that need to worry about meeting competitive challenges.
However, if you add all their memberships together, they comprise less than 5 percent of the estimated service companies doing business in the country. In the public's mind, the industry includes way too many companies that do way too many things wrong.
Please don't read this commentary as pessimistic. On the contrary, it's brimming with optimism. The underlying message is that you're in a business so attractive, numerous nontraditional players are anxious to get a piece of the action. That should be encouraging.
Now all you have to do is figure out how to leverage your trade knowledge to give customers the best value for their money.