Diversification Done Right
“Regardless of what a customer asks you to do, there’s only one answer,” says William R. Griffin, president of Cleaning Consultant Services Inc., Seattle, “and that’s, ‘No problem, we can take care of it.’”
In today’s competitive marketplace, this response has become the building service contractor’s mantra — and companies are backing it up with a can-do attitude and a willingness to provide any service their customer requests. Gone are the days when BSCs stop short at janitorial services. Many are branching out into areas such as pest control, security and landscaping to supplement their primary business and offer customers a one-stop shop.
Facility managers are outsourcing more nonessential operations and BSCs are finding that customers prefer the convenience of dealing with one vendor and one bill for multiple services.
However, BSCs should proceed with caution.
“Diversification can be an excellent opportunity for additional income,” says Griffin. “It can also be a disaster.” Most companies just aren’t ready, he says, and for those who are losing money, diversification could mean the death of their business.
As with any business venture, BSCs need to carefully research the industries they wish to expand into before developing a business strategy.
BSCs diversify in three ways: by acquiring other companies, by subcontracting out to other companies, or by doing the work themselves. First and foremost, they must obtain domain expertise — and for BSCs that add services dissimilar to their core business, acquisitions may be one of the quickest methods to obtain that knowledge.
Kimco Corp., in Norridge, Ill., was exclusively a contract-cleaning company until 2001 when it branched into handyman and HVAC services. Since janitorial and handyman services shared similarities, company executives chose to hire employees with handyman expertise and run both services under the Kimco umbrella. For HVAC services, Kimco acquired an HVAC company.
“HVAC is wildly different [from janitorial],” says John Barrett, CEO, Kimco Corp. “There is no common ground, so it must be run with its own executive team. The biggest challenge was becoming familiar with the unique requirements of that industry.”
For BSCs that are not in acquisition mode, hiring subcontractors can be an attractive alternative. Richard Ollek retired from Mid-America Building Maintenance in Phoenix, where he subcontracted out pest control and landscaping services.
“I was not an expert in these areas,” admits Ollek, now senior consulting partner, Consultants in Cleaning, Camdenton, Mo. “We knew the janitorial business inside and out. Rather than try to become a professional in other areas, we decided to partner with other professionals so there wouldn’t be a learning curve, and if we made a mistake, we wouldn’t jeopardize our other business.”
While growing a business internally and finding qualified employees can involve greater risk — and take longer — the rewards are worth the effort. Joseph Obazee, owner of P&J Quality Maintenance & Housekeeping in San Diego, started his business in 1991, at which time he only offered janitorial services. Over the years, his business has expanded to also include landscaping and home improvement services.
“Sometimes when I was cleaning, the painter, or plumber, or electrician would come, and I’d watch what they were doing,” says Obazee. “By observing, I learned how to do most of the basic work myself.”
Obazee also hired someone with maintenance experience to assist him and soon learned one of the dangers of diversifying: relying too heavily on one person.
“I was so dependent on this guy,” says Obazee, “and I thought, ‘What if he quit?’ I would have to do the work myself.”
Eventually, the employee resigned, and Obazee found himself in a difficult situation.
“I had no choice,” he says. “I had to do it myself, [but] the more I did it, the easier it got.”
Today, Obazee has found a healthy balance between doing the work himself and contracting out to other companies.
BSCs can also turn to industry associations and schools to find qualified candidates, says Dick Dotts, president of Diversified Maintenance Services, Los Angeles. When his company branched out into landscaping, he sought an employee who was knowledgeable about the business and had the right credentials.
“Landscaping is a fairly technical field,” he says. “There are more kinds of plants in the world than cleaning chemicals, and if something is wrong with a plant, you have to diagnose the problem or find an expert that can help you. You also have to consider the geography and climate of the area, and know what plant material is most suitable for that region.”
By attending industry trade shows and hiring qualified people, Dotts started to learn the landscaping business. Today, he has approximately 300 landscaping employees.
Mind your business
While many of the services BSCs offer are similar in nature, there are often subtle — and not so subtle — differences that need to be addressed. BSCs expanding into security services, for example, must familiarize themselves with new contract, payroll and billing procedures that may contradict the cleaning side of the business.
“In the janitorial industry, if someone on the crew doesn’t show up, everyone pitches in to get the job done,” says Richard Dickinson, president, Dickinson & Associates, Houston. “If you have a security contract that calls for three people on the night shift, you have to have three people on the night shift. If someone doesn’t show up, you put your uniform on and you get out there. It’s a 24/7 business.”
For smaller companies, this can be a difficult adjustment to make. Also, security companies bill per hour while janitorial companies typically bill per month, using square footage in their cost calculation, along with other items such as number of offices, carpet vs. bare floor, etc.
In addition, BSCs must be familiar with the state regulations that govern security companies, says Gary Kuty, CEO, Kuty & Associates LLC, Dayton, Ohio.
“Each state has separate regulations,” he says. “[BSCs] need to be licensed as a security company, and they have to have a minimal amount of liability and workers compensation insurance. They have to apply to the state to be licensed for business in that state and register all the security personnel they bring on board.”
Other diversified services, such as pest control, also require compliance with state regulations.
“In most states, you have licensing requirements to handle hazardous materials,” says Griffin. “Also, if you spill chemicals in your truck or on the street, there are liability and cleanup issues.”
BSCs must take into consideration costs associated with insurance, security and disposal of dangerous chemicals when branching out into services beyond janitorial.
Despite the challenges, BSCs are continuing to bundle services to meet customer demand and turn a profit. And while many of them are successful at it, the consensus seems to be that slow and steady wins the race.
“Often diversification is not lucrative at first,” says Barrett. “These are businesses that require investment. If someone’s in a hurry to get return on investment, this is a lousy strategy.”
Companies often overlook services that require less time and money to get up and running.
“There are add-ons that people are missing out on, like spot removal, furniture and carpet repair, and graffiti removal,” says Griffin. “So many things are slipping through the cracks. There’s training out there to do these things, and they’re highly profitable.”
Perhaps once BSCs master these add-on services, they will be ready to try their hand at other diverse, and profitable, operations.
Kassandra Kania is a freelance writer based in Charlotte, N.C.
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