One-Stop Shop: Diversifying Services
By Lisa Ridgely, Deputy Editor of Contracting Profits
Many owners, presidents and other executives who work for building service contracting companies take great pride in how well they know janitorial work. They’ve been in the business for years — sometimes having started as janitors themselves — and have spent a lot of time and money making sure their employees are trained, their companies are insured and certified, and their customers are satisfied.
However, the era of simply cleaning buildings has long since passed; these days, janitorial may remain a core service, but most building service contractors have realized that, to customers, the value of their companies has as much to do with the quality of service as the convenience of being able to satisfy a number of needs using one service provider.
In a nutshell: if janitorial services are already being sold to a number of customers, why not sell them more?
Through launching new service branches, strategic partnerships with other service providers, acquisitions and subcontracting, BSCs are striving to create solutions for customers rather than direct their business — and that revenue — elsewhere.
“It just makes you more valuable,” says John Ezzo, president of New Image Building Services in Mount Clemons, Mich. “It makes you less disposable because to get rid of you, they have to get rid of multiple service disciplines instead of just one.”
Smart diversification of services requires recognizing what customers need, identifying important background experience in existing management-level employees, hiring of additional managers and the capital to fund the expansion.
It also necessitates paying attention to and responding to service trends and customer needs.
“Cleaning is still absolutely, positively the core business. It continues to be the biggest line item in most people’s budgets,” says John Barrett, president of Eurest Services, Wayne, Pa. “But we are seeing dramatic increases in complementary services. The rate of change has increased significantly and what we’re finding is strategic sourcing organizations continue to drive value into their companies.”
Eurest is a huge facility services company, and many of its large customers are looking to consolidate spend with capable service providers. While janitorial and other interior services have been the traditional focus of business, Eurest is investing in new capabilities with a focus on exterior services, which hold a great deal of promise, Barrett says.
Another key to successful diversification is knowing who is making the purchasing decisions.
“We’ve been careful to diversify only those services that are being purchased by the same person,” says Ezzo. “If the facility manager is purchasing the security and the cleaning and the repair work, you don’t have to try to sell to a different office at that client — we can sell all to the same person.”
The trend in purchasing is consolidation, so it makes sense to appeal to these decision-makers in purchasing by offering multiple services, Ezzo says.
Where to start
Opportunities to diversify can come in many different forms. Barrett recommends forming an internal strategy to use the strengths found in a company’s existing management.
“I think the best place to start is to look within your firm to see what expertise might reside in the management,” Barrett says. “Most people didn’t do cleaning their whole lives — they did a lot of other things. You might find that there’s a core skill set in some of your management team that can form the basis for an external examination of your clients in your markets to see if there are any opportunities that can be exploited.”
It’s possible that managers working for BSCs have experience in landscaping, HVAC or other disciplines. Building a service offering on the skill sets that managers already possess is one option that prevents companies from having to start from scratch, Barrett adds.
Being able to fund a new venture, is, of course, vital to ensuring a successful start. Banks are starting to lend money again, and money is also freeing up in private equity funds looking to invest in the industry. Ezzo recommends companies diversify while they have profits to divert.
“If you’re going to launch diversification, do it before it’s too late, when you’re profitable enough that you can fund it out of your current cash flow,” he says.
Contractors agree that it’s extremely important to hire the right personnel. Not only do they need to have the expertise to do the job well, but they need to be trustworthy, open-minded and willing to learn as much from a BSC as the BSC is willing to learn from them.
BSCs are used to being able to handle janitorial-related aspects of company business, especially related to customer service and relationship management, so it can be difficult to give up control of accounts to someone who has expertise in other services.
“A lot of small business owners have those relationships themselves and they protect those relationships, but if you’re going to diversify into something you’re not experienced in, something more technical for example, you need to be more open-minded to loosening that and allowing those people to interface with the client,” Ezzo says. “So, it’s all about finding the right people that you can work with and you can trust.”
He warns BSCs that they have to be willing to give up some control to those who know what they’re doing. An owner’s job is to support the business: provide funding, access to clientele, oversight, human resources, accounting and administration. When it comes to the technical side of things, let the experts handle it, he says.
“The last thing you want to do is screw up the business because you think you know, and you don’t know,” Ezzo says.
Don’t lose sight of core services
Some BSCs prefer to stay focused on what they do know — janitorial — rather than risk spreading themselves too thin and underperforming on services. Diversification, for United Services of America in Stamford, Conn., has meant diversifying its client base rather than its service offerings.
“We’ve stayed focused on putting all of our eggs in one service delivery basket,” says Paul Senecal, president. “So what we’ve done is diversify our client group. Instead of responding to RFPs and letting the market dictate who we do business with, we make a cognizant decision of who we want to do business with and then we go after those people and we let the other opportunities go by unless they’re literally dropped in our lap.”
While offering services such as landscaping and security might be something Senecal’s customers would take advantage of, United Services made a decision to stay focused on cleaning. The additional services they do offer, painting for example, draw from the same labor pool, have the same customers and is similar to janitorial work.
Landscaping might draw from the same labor pool and have a similar customer base, but the work is much different. Security service has the same customer base, but is so operationally different in terms of labor pools and skill sets, it was not a desirable option, Senecal says.
The problem with diversifying, he says, is that, while it’s true that providing more services makes a company harder to replace, it also has the potential to expose a weak link that could affect an entire account.
“Your weakest link becomes your biggest problem,” Senecal says. “If you make a mistake landscaping, which is the smallest of all those revenue sources, and you lose your cleaning and security account, you’ve got a problem.”
In the years that he has been in the cleaning industry, Senecal says he has never seen anyone do multiple service offerings exceptionally well.
“I’ve seen people do it well, but not exceptionally well,” he says. “Hard to be all things to all people.”
But focusing on additional service offerings is manageable, Ezzo says.
“Some people say to me, ‘Isn’t it risky?’” Ezzo says. “My answer is, ‘I’m still limited in focus to providing building services.’”
Diversification has proven to be lucrative and a wise business move for many building service contractors that seize upon opportunities and provide the structure for success and growth for those additional services. Responding to customer needs remains the highest calling for BSCs, no matter what services they decide to provide.
Responding to customer needs
Ezzo’s company is diversified in a number of areas but his experience entering into security services has provided him with many valuable lessons, which he shares freely with fellow members of Building Service Contractors Association International (BSCAI). Last year, he gave a presentation on diversification at the association’s annual convention, and there he shared the ups and downs of taking on the new service.
It started as an acquisition, but those negotiations fell apart just days before it was supposed to finalize. Since Ezzo had already set aside funds for the acquisition, he decided to hire the security firm’s manager and started a security service on his own. And it wasn’t smooth sailing from the beginning, but in the past two years since the launch, things have stabilized and are turning a profit.
From a labor management standpoint, security makes sense, Ezzo says.
“Cleaning is labor-intensive, so it requires you to have a good recruiting strategy, to have good background checks, to have good training, to supervise, manage and motivate people,” he says. “Security is the same thing. So you’re hiring from basically the same labor pool, along the same wages."
Security and handyman repair services have been Ezzo’s two most popular services — and especially since the recession forced many customers to cut back on cleaning budgets, having other services that are more in demand has definitely helped the overall bottom line.
It’s difficult to understate the effect the recession has had on diversification trends for BSCs. While some services have suffered drastic cuts, others have flourished — sometimes, ironically, due to those cuts.
Not only did office building customers cut back on waste removal frequencies, but office workers have cut back their own spending on eating out and now eat lunch at their desks more often, says Jill Frey, president of Cummins Facility Services in Prospect, Ohio. And that created a perfect storm for pest attraction.
“When we saw clients go toward three-day-a-week trash removal, that also created the need for bug termination,” Frey says. “It’s gone hand-in-hand. People don’t understand when they don’t throw their trash out every day, why there are more bugs.”
Cummins had started offering pest control services about five years ago, but has been able to capitalize on the cutbacks to janitorial services of the past few years, as well as the recent bed bug epidemic.
“It’s one more added service that you can provide to your clients very inexpensively,” Frey says.
The company also just launched a snow removal service in 2010, and had an extremely good first winter — thanks in huge part to a active winter weather systems that pounded much of the United States.
However, what’s a good investment for one BSC may not be the best choice for another — and that goes for all services, but particularly ones that are heavily regulated like pest control.
“We don’t self-perform any pest control,” says Paul Greenland, president of Aetna Building Services in Columbus, Ohio. “The certifications and regulations are pretty strict; when our customers ask for it, we’ll bring in a subcontractor partner.”
Subbing it out
Subcontracting, or bringing in another contractor to provide a specific service to a current customer, helps BSCs provide a richer portfolio of services to their clients.
The practice, however, may be on the decline due to the trend of diversification, in which BSCs absorb those services into their own companies, as well as the trend of illegal subcontracting, which has been on the rise for years and can threaten the reputation of a company.
Also, says Senecal, it’s just not that profitable.
“We did [more subcontracting] in the past, but there’s not enough money to be made in subcontracting things,” says Senecal. “Most people who are sophisticated buyers see what a middle man is and wonder why they’re paying for the middle man.”
Subcontracting isn’t much of a consideration for many of the BSCs Ezzo has visited with.
“If they’re going to be diversified, they’re going to do it themselves, either through acquisition or starting up another business unit,” he says.
Most of Aetna’s diversified services, such as concrete polishing and industrial painting, have been offered for more than a decade, and they’ve all been driven by customer need. The company began to offer facility services such as office support, painting, contract management and maintenance, about six years ago after it acquired a small facility services company and brought the owner aboard to run all of Aetna’s facilities. Aetna now sells facility services to other customers.
The key with that acquisition was bringing the owner’s expertise aboard.
“His expertise is really on doing the facility services stuff, not on sales and marketing and administration,” Greenland says. “We’re already running all that for 1,200 employees so it was really no big deal to tuck that into our business. But where we lacked the expertise was on the facility services side. So it was a really good partnership.”
Greenland sees the need for facility services growing. Most European BSCs are already providing them, so it may be only a matter of time before that trend hits the United States. While some big players are providing it on a large scale, and some small companies are doing it on a small scale, he isn’t seeing much competition from other mid-market sized companies, which give Aetna a decided edge.
“The big property management companies don’t want to get involved in the smaller facilities and the smaller facilities can’t afford to have someone on staff, so it makes sense for a service provider such as ourselves to be the one-stop shop for everything from changing light bulbs to fixing doors to coordinating trash removal,” Greenland says.
Ultimately, BSCs are doing the best they can to provide quality solutions to their customers — and they’ll do whatever it takes to achieve that objective. Solving problems solidifies relationships with customers, building the bonds of trust that matter so much in the post-recession environment.
“It’s really fun for me,” says Frey. “My clients can pick up the phone and say, ‘This is what we need. Can you do this for us?’ I feel like they trust me to take care of them and their employees as well.”