In this blog I have mentioned the Low-Overhead-Trade-Contractor (keyword LOTC in the Tagcloud), a term I coined to represent a broad population of construction services businesses such as my company, MidWest Mosaic of Toledo, Ohio. This is a story about George, a LOTC with whom I recently collaborated on a project. I provide it to give you perspective into the LOTC reality, a topic about which not so much is written. But first a little background on industry structure and then on to George.
Construction services, you see, is very local, an excellent example of a highly fractured marketplace. Large consolidated businesses - such as the infamous “no-bid” Halliburton (HAL) or the homebuilding giant Pulte (PHM) - are the exception. In fact, the everyday large construction firm is comparatively small-to-middling with respect to these large publicly traded businesses. A check of US Census data tells us that over 75% of the 330,000 plus construction contractor businesses have 10 or fewer employees, suggesting much of the construction work put-in-place in the US is put-in-place by LOTC’s. LOTC’s can be found performing the work of large organizations, even in the Halliburton/Pulte complexes, due to the ease with which work is subcontracted. The reality is, the bigger the firm gets, the less work is performed in-house; hence, the more the firm relies upon LOTC’s. But this is an idea to explore in future posts.
Now back to George.
George is a professional tiler. He enjoys laying tile and sharing his craft with clients and fellow LOTC’s alike. George appreciates their unsolicited comments that, “he does good work.” He hears this often. Upon our first meeting, George represented to me that he is among the best tilers in his town. Having worked with him, I can attest that he is indeed highly effective among the tilers with whom I had the pleasure to work over my 20+ year career. George is fast and clean – a desirable combination for a tile installer. His workmanship is both flat and true – universally appreciated qualities.
In addition to his exceptional trade skills, George demonstrated superior customer facing skills. When on the job, we were working in an ongoing retail environment (we were the noise behind the plywood dust enclosure). The tenant complained about the noise from our saws. He asked us to shut down our cutting operations and reserve noisy work for off-hours. While tile cutting can be disruptive, it is integral to the work process. One cannot just stop it without making extraordinary accommodations. Besides offering no options, the tenant’s request threatened our customer’s budget goals and schedule commitments; hence, jeopardizing the profitability of our work as well as the continuing patronage of our client. A lot was at stake. Still, George subverted our worries to the tenant’s needs by offering a reasonable alternative. George’s cool head and customer awareness saved the day.
All the while, George and I grew in our mutual respect and trust for each other as we discussed the subtle nuances of the tile trade. It’s amazing how so many pass themselves off as competent tilers yet fall short. It’s all about the provenance of the tiler. Are they masons who specialize in tiling or are they floor layers who count tiling among their capabilities? The distinction is important, especially when you consider where tile is typically utilized in conjunction with the expected quality and performance characteristics of the work. Tile may be a flooring choice, but you would never expect to see carpet in a shower, nor would you expect its lie to be flat and true conveying water from high to low. With tile there is more beneath the surface, and simply being capable of combing a notch and dealing the squares as if they are some common VCT (Vinyl Composite Tile) does not a tiler make.
Finally, when we had completed the job and were quite exhausted having met our goals and commitments, George took responsibility for jobsite cleanup above and beyond what is customarily expected. This little detail at the end is a difference maker. It said to our client, “we absolutely want your continued business”.
George’s business organization is straightforward. He is its sole proprietor, the Chief Cook and Bottle Washer. His principal hard assets are his tools and equipment, of which his full-sized work truck comprises the majority of his business capitalization; however, his most prized asset is his word, an intangible asset. I have no doubt that George’s word is far more binding than Halliburton’s. One only need look to Halliburton’s slippery escape from BP’s Deep Water Horizon fiasco. The irony here is Halliburton’s intangibles – in its name and reputation – are transferrable, making up a significant portion of HAL’s share value; whereas a LOTC’s word, while more precious, is non-transferrable, as illiquid as a mortgage backed security. Go figure.
George has a simple approach to business: Do really good work at the market price to earn the continued patronage of his clients and their referrals – all the while accepting what remains after his expenses. George does not own a computer. Moreover, he does not keep up a regular bank account. Essentially, his back pocket is his all-in-one banking and bookkeeping package. You see, George is disinterested in the numbers side of the business; naturally, he wants to focus on doing his craft. Lest we forget that accounting and bookkeeping, while immensely useful, are not prerequisites for actually doing something. Besides, LOTC’s come to be through their skill at building, not through accounting or management acumen.
While this may surprise the more marketing and management minded among you, the proof is in George’s outcome. Like so many LOTC’s, George’s effort has provided a simple yet wholesome lifestyle for his family, with whom he holds a steadfast commitment. And, up until recently, his lifestyle was on a growth trajectory – following a long standing bullish trend in the housing sector.
Unfortunately, his business model, like so many others, imploded with the housing bubble. Pre-bubble, his backlog of projects extended out for weeks, sometimes months. George used to name his price and even turn away work (usually smaller or messier jobs). Now his deal flow is spotty; his usual customers (principally home builders) are slow or no longer in business, while prices-paid are what they were 20-25 years ago. He is no longer turning away the small and messy jobs. The slow flow and low pay make it increasingly difficult for George to spend less than he takes in. His business provides the bare minimum for his home while his tooling and equipment suffer. As we write this, rising gas prices are limiting his ability to operate his vehicle.
As a LOTC hungry for work, George finds himself at a crossroads—he can continue to struggle through as is or he can change what he is doing and perhaps find a better way to get through. George and I agree a subtle shift in his marketing approach may be all he needs to improve his deal flow; improved prices-paid follows deal flow. I can offer him help because George trusts me. He knows that as a fellow LOTC, I have faced and continue to face dilemmas like these.
I choose to put these in writing.
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