With the help of
a little business-savvy, residential service work can be a lucrative venture for the electrician who wants to go it alone
Like so many other electricians who get fed up with their current employers, Rodney Jessen reached his breaking point 15 years ago and grumbled to himself the eight little words that are the undoing of so many in the electrical contracting business: “I can do this better on my own.” Unlike many of them, though, he actually set out to prove he could. He quit his job as the Seattle licensee for a national electrical contractor. He sold his house to pay for his start-up costs. And with one truck and his wife working as his receptionist, he opened Electro Serve in 1989.
Since then, he's built his business into a $5 million-a-year company without ever bidding on a commercial construction job. Instead, the secret to Jessen's success has been service, specifically residential service. Contractors married to the big-score mentality of commercial construction work may scoff at the idea of surviving by pocketing only a couple hundred dollars at a time on residential house calls, but Jessen and other supporters of the service industry point out that unlike general contractors, homeowners always pay on time. “For an electrical contractor, it can be frustrating to wait 60, 90, or even 120 days for payment,” says Lisa Schardt, business enhancement specialist for Nexstar Inc., a consultant group that provides training and support to new and existing service contractors. “It can be frustrating to try to chase down GCs on a Thursday night so you can make payroll on Friday. So even if you don't want to give up the construction side of your business, a service division can produce revenue for you every day and help you through those lows.”
A stable income is only half of what drew Jessen to service work. While working for that national contractor, he found that the opportunity to succeed was there for an enterprising electrician who was willing to take some risks. “It was a wide-open industry,” he says of service contracting in the late '80s. “You could come into Seattle or any town back then and become a dominant player in months.”
In fact, that's still the case in most parts of the country. “The residential service market is untapped,” Schardt says. “Go to any city and open the Yellow Pages and you're going to see 15 pages of big ads in the plumbing section. Then go to the electrical section. The first position may be a half-page ad. The opportunities are there.”
Starting over as a strictly electrical service contractor can be a risky proposition, but it's a decision that advocates say — and Jessen has proved — can also be lucrative with the right business skills, a willingness to share with other contractors, and a strict attention to serving the customer.
A different kind of toolbelt. Unless you're just lucky, it only makes sense that you're going to struggle in business if you don't have a certain amount of business acumen, but that's just what happens to many new electrical contractors — both construction- and service-based — every year. An industry risk evaluation released in May 2004 by BizMiner found that about one in four new electrical contracting companies started in 2001 had closed its doors by 2003. A 75% success rate during two of the hardest economic years in recent memory might actually seem promising, but consider this: numbers published by the Small Business Administration show that only 23% of small independent companies are still in business after their fifth year and only 18% are still around after a decade.
Experts say that in the rush to go it alone as service contractors, many electricians believe they can get by on their technical skills and forget that understanding how to run a company is just as important as knowing how to wire a branch circuit. And even if they beat the odds and survive, they may enslave themselves and their families to a company that may never turn a decent profit. “They go into business for themselves with these great visions of doing it better than their bosses,” Schardt says. “And all too often they find that they're great tradespeople and can fix anything but that business skills are a completely different tool belt.”
Jude Raspino, president and CEO of Stuart Services in New Orleans, learned early that being the best electrician he could be wasn't enough. He floundered for 10 years before joining Nexstar in 1997, but since then he has enjoyed steadily increasing success. Stuart Services now posts between $2 million and $3 million in revenue annually. “You never stop making mistakes and learning from them, but you work a lot smarter when you get into a formalized group,” he says.
For Raspino, part of being a good businessman includes the development of his middle management. Contractors who insist on micromanaging and closely monitoring every facet of their business have less chance to grow because they spend all of their time putting out day-to-day fires. In the last three years, he put a lot of effort into training his service and office managers so they could take on added responsibility. And more recently he implemented an open-book management style that gave his employees more insight into how the company is run and empowered them to solve problems for him. “Now when I'm away at a seminar or on vacation it doesn't matter because the business runs without me,” he says. “And that's allowed me to work on my long range planning.”
Another business practice that can escape the contractor who's used to commercial work is marketing. In the low-price-wins world of electrical construction, there's no reason to advertise — GCs don't look for subs in the phone book. But when your customer is Mr. and Mrs. Homeowner, name and brand recognition is crucial. In the beginning, Jessen's strategy was to dominate the Yellow Pages. Once he accomplished that, next came the radio. And today Electro Serve has a 12% top-of-mind awareness among Seattleites for electrical service. His secret? A catchy slogan and promise reminiscent of one made by a well known pizza joint: “We'll be out today or you don't pay.”
Marketing is the largest line item on his expense sheet, but the notoriety his ads have created has allowed him to consider a “less is more” approach to advertising to free up more money for training. “I've found that it isn't how much you spend, it's what you say,” he says. “So if you have a really great message, you can spend less and be heard more.”
Not everyone can have the kind of runaway success from their advertising campaign that Jessen enjoyed, but the important thing is to not give up when you don't get the results you want right away. The contractor who cuts his marketing budget because a mailer only generated four calls is actually reducing the value of the money already spent. “People want to see instant gratification with marketing, but that's just not a reality,” Raspino says. “It's an all-the-time thing.”
Better business bureau. Along with hosting workshops and training sessions for member contractors, Nexstar and the recently formed Electricians' Success International (ESI) stress the importance of networking with other contractors and sharing ideas. Patrick Kennedy, a well known name in the electrical service industry — his Atlanta-based Mister Sparky, Inc. brings in more than $6 million a year — has spent much of his time the past several years teaching his business model to other electricians in the hopes that they might enjoy a level of success similar to his. Before joining ESI as its President and CEO, he served as a board member for Nexstar when it was known as Contractors 2000.
The share-and-share-alike concept advocated by Nexstar and ESI will no doubt seem counter-intuitive to the contractor who wants to always stay one step ahead of his competition. When Raspino joined Nexstar, he was leery of giving potential competitors a look into the inner workings of his business, but then he saw how a group of 12 members in the Philadelphia area — some of who were direct competitors — would get together for dinner once a month to discuss their businesses and compare growth strategies. Seeing how they benefitted from that practice was enough to ease his mind. “When I started out, I didn't want to let anyone get that close because I thought they could take some of our ideas and become stronger competitors,” he says. “But look at those companies in Philadelphia. Even though they're networking with potential competitors, they seem to do really well.”
In fact, the exercise most likely to make business owners squirm is the one Raspino has enjoyed the most. Stuart Services hosted a peer group session this year in which Raspino gave full disclosure on everything from his marketing plans to recruitment techniques to nearly 50 Nexstar members who then offered criticism and ideas for improvement. “That's how you evolve from a technician into someone who knows how to manage a business and its employees and can plan growth and marketing,” he says. “The flip side is the uninformed contractor who still has the bid mentality and thinks he has to offer the lowest price. That hurts the industry as a whole.”
Jessen bristles at talk of contractors who worry about exposing trade secrets. “Of course you have to share information and work together,” he says. “If we just sat in Seattle and said, ‘Boy, aren't we neat. We're the best at what we do,’ someday, someone would come along and clobber us.”
So in the interest of sharing, he was one of the first five contractors to join ESI when it began taking members this spring. Even though his business was well-established, he thought it was important to be a part of the group to share his ideas with others. “If I can help other contractors throughout the nation become very successful and if I can be just one more voice to reaffirm Patrick [Kennedy's], then we could maybe come together someday and be like the True Values and Ace Hardwares of the electrical industry,” he says.
Price is perception. With all that talk of business skills and growth management, it's important not to forget the foundation of service contracting: the service itself. The market in Seattle isn't as wide-open as it was when Jessen started Electro Serve in 1989, so he has put an increasing emphasis on building loyalty in his customers by providing excellent service. “You have to differentiate yourself from the marketplace,” he says. “So we're working really hard to give our repeat customers an experience they remember and an expectation for the next time we come.”
That concept is something ESI calls “owning the customer,” and Kennedy says it begins with the appearance of your employees. Thanks to years of stereotypical images in TV and movies, the typical homeowner has a preconceived notion of technicians as rough-looking laborers who have a tendency to wear their jeans a little too low. As a result, they may dread having to call for service for fear of who might knock on their door. So when a clean-cut electrician shows up instead, the customer-technician dynamic will make an abrupt change for the better before the first word is spoken. “By being sharp and clean and professional, you put your customer at ease,” Kennedy says. “And you want your customer to be comfortable so they'll do business with you.”
A professional attitude, according to Schardt, extends to the way the technician interacts with the customer, who is typically a woman over 35 years old. “She doesn't want a technician in her home using all of the tech lingo,” she says. “That won't mean a thing to her. She called you because she has a problem and she wants you to fix it. So you have to know who your customer is, and you have to know how to deal with them.”
All of which can take a little strain off the most stressful part of the transaction: the bill. It's not uncommon for a homeowner to experience a little sticker shock when it comes time to settle up, but as Kennedy's theory goes, when you're providing a higher level of service by doing more than just installing a light switch the customer is more likely to factor that into the price. “Even if the bill is a little more expensive than Mrs. Smith thought it was going to be, she's going to think, ‘But look at this guy. He showed up on time, he was a personable guy, and if he takes care of his appearance like that, he's going to take care of my home equally as well. I think these guys are worth it,’” Kennedy says. “And then we just proved that the value of what we're offering is worth the price we're asking.”
All that money Jessen was spending on Yellow Page ads forced him to price his services accordingly to cover the volume of calls they would generate, which made him twice as expensive as anyone else in town. “But what we found was that the customer would pay it,” he says. “As long as you showed up when you said you would and did the work that you said you were going to do — in other words, fulfilled all of the customer's expectations — they would pay the higher price.”
And now that big box retailers are beginning to dabble in service work, providing that extra value will become even more important. Jessen is doing everything he can to keep a firm hold on his share of the Seattle market. “I want to carve out a niche of awesome service,” he says. “I want to be the Starbucks of the electrical service contracting world and make Home Depot the $.25 cup of coffee.”
Sidebar: The Service Industry Org Chart
The differences between commercial construction and residential service work go beyond the type of work involved to the personnel necessary to run the business.
Jude Raspino of Stuart Services says every service contractor needs three additional employee positions to adequately serve the customer.
Customer service representative (CSR) — Customers will often call to price shop, so it's important to have CSRs who can convert that fishing expedition into a service call.
Dispatcher — If you plan to run multiple trucks, you're going to need someone who knows how to efficiently coordinate the service runs. “There's definitely an art and science to that,” Raspino says.
Service manager — This is the service industry equivalent of a field supervisor who also helps technicians set goals. “At the end of the day, he's a coach,” Raspino says.