The most forlorn of the consolidators came out of the starting blocks with a game plan to will itself into a brand name. They bought some fine companies that had painstakingly built solid reputations in their markets over many years. Suddenly they had a meaningless new logo slapped on their trucks and corporate foolishness shoved down their throats. As a result, American Residential Services (ARS) is hanging on by its fingernails as a viable business entity.
Other roll-up consolidators mostly have gone in the opposite direction. Talk to those devoured and you’re likely to hear them say that they rarely interact with corporate hq. Branch managers fill out a few forms and chat on the phone from time to time with their overseers, but not much has changed from the days as independent companies, except ownership-and, in some cases, employees feeling like part of a family.
The logic of consolidation is that the whole ought to be greater than the sum of its parts. A company that gets purchased ought to become a better place to work for employees and a better firm to patronize as a customer. One ought to be able to visit affiliates thousands of miles apart yet detect a common corporate culture.
Most of the rolled-up companies fail to measure up to this standard. PHC firms are being wolfed down like burgers at a sumo training camp, but all it’s led to are bloated bellies.
Only two plumbing consolidators depart from this mold with distinct corporate cultures. Roto-Rooter is one. I would love to tell you more about their ideas and operations, but they have resisted PM’s entreaties to cooperate in telling their story.
The other is ServiceMaster, which is happy, even anxious, to open up to the plumbing industry public.
Grand Entrance
ServiceMaster entered the plumbing industry with a big splash last year by purchasing the Rescue Rooter plumbing and drain cleaning chain. At the closing in January 1998, San Diego-based Rescue Rooter had 19 locations, mainly in the western U.S., and previous year sales of $72.9 million. In the first year owned by ServiceMaster, Rescue Rooter grew to 26 locations in 12 states and $103 million in revenues.ServiceMaster has made eight acquisitions since buying the flagship, including three HVAC companies, their first venture into that trade. (A name change is in the works for Rescue Rooter in view of their expanded services. Market research was underway at this writing and a new identity may be in effect by the time you read this or shortly afterward.) Also melded into Rescue Rooter was a company-owned plumbing firm ServiceMaster had started in Memphis several years ago as a way to learn the plumbing business before leaping into it with guns blazing.
Rescue Rooter president Bill LeBaron says that by year-end the company will be twice as large as it was at the time of purchase. Most of that will come from other acquisitions, but a good chunk will also represent internal growth.
“We are an operating company,” he emphasizes. “We’ve done a lot to make Rescue Rooter a healthier company than it was when we bought it.”
Applied Philosophy
That is the biggest difference between ServiceMaster and the other industry consolidators. More than any other they bring to the table a coherent, proven philosophy and methodology for running a national network of service companies. Not only running them, but turning them into market leaders.LeBaron came to Rescue Rooter from an executive position with ServiceMaster’s TruGreen-ChemLawn division. He had been with ServiceMaster since the 1970s, when they acquired a lawn care business he had owned. He believes that all service businesses are amenable to the ServiceMaster philosophy, which he articulates as follows.
“We’re not just a roll-up company. We will do some acquisitions, but will not succeed in this business unless we grow internally. We want to create a great work environment, provide great vehicles, the best equipment and a pay plan that’s top of the line. That’s the kind of company we are. In other industries we’ve gone in with our resources to bring value to our employees. In the end, that leads to better value for customers,” says LeBaron.
As an example he cited the upgrading of Rescue Rooter’s aging service truck fleet. ServiceMaster took over around 700 vehicles, some with up to 300,000 miles on them. In the past year they have purchased 165 new trucks. They also have built a prototype vehicle specifically for the plumbing trade. According to LeBaron, ServiceMaster operates the fifth largest fleet of vehicles in the U.S. Their buying clout and maintenance systems comprise a significant competitive advantage.
People Systems
The business world has rendered the term “people business” into a cliché and all too often a sham. Everyone claims to be in the people business, that people are their biggest asset, and so on ad nauseam. Not many companies practice what they preach as well as ServiceMaster. Chairman C. William Pollard wrote a popular 1996 book, Soul of the Firm, explaining ServiceMaster’s philosophy of people management. I read it leading up to this story coverage. Prior to that I had avoided trendy business books due to the superficial sloganeering that characterizes most of them. This one is a fascinating read.LeBaron gave me a puzzled look when I asked him about what I identified as the industry’s biggest problem—finding and recruiting competent employees, especially service technicians. That’s never been a problem with ServiceMaster.
“We’ve had a net gain of 200 techs in the last year,” says LeBaron. “A lot of owners around the industry say they can’t find people, but they’re not even trying. Most general managers don’t even bother to interview.
“I keep hearing that it’s hard to attract people because the industry isn’t very glamorous. If I’m a young person and can build a skill for the rest of my life and make good money, why is that not attractive? I don’t think this industry is unattractive at all. I think it offers lots of opportunity to learn a trade and grow.”
Where do you find good people? ServiceMaster’s contention is that they emerge from all kinds of hiding places once you offer jobs with decent pay, opportunity and working conditions. Rescue Rooter finds its people from the same sources as anyone else. Some come from classified ads. They hire many people away from other plumbing companies. ServiceMaster also hired back some former Rescue Rooter employees who had quit due to poor morale in the years prior to the sale. Also, they are targeting military veterans.
Finding them is only half the battle. This industry is haunted by turnover. The average technician lives a vagabond existence and many leave the industry altogether. ServiceMaster’s remedy is embodied in the second of four statements that comprise the corporation’s mission statement.
To help people develop. They emphasize training, growth opportunities, and providing the best tools and technology available — sometimes inventing them — to help their employees do their jobs with maximum efficiency and minimum exertion.
Lance Sinclair is Rescue Rooter’s human resources chief, carrying the title of Director of People Services. “We knew going in about the industry’s high turnover rate,” he says. “We’ve put together a game plan specifically to address that.”
Training & Development
Not too far from fruition is the industry’s first full-fledged company technical training program for plumbers and drain cleaners. The first of five phases, a basic introductory course, is expected to be implemented in Rescue Rooter service centers within six months. After the plumbing program gets underway they’ll develop one for HVAC. The program is being designed to comply with all applicable Bureau of Apprenticeship (BAT) and licensing provisions in service center jurisdictions.“We designed the program from the ground up,” says Jarrett Robinson, director of training and safety. “Instead of grabbing a textbook or hiring outside consultants, we asked the master plumbers within our own company what our curriculum needs were.”
He envisions the program taking an average of three years from start to finish, although duration will vary according to individual competency and state BAT requirements. It is designed as a self-tracked work-study program with instructors and workbooks, but with test-out provisions for some sections. Mockups of pressurized plumbing systems are being put into all service centers for hands-on training. Computer-based training and videos will play key roles in the instruction. (ServiceMaster has its own video production facility at its Consumer Services headquarters in Memphis.)
Sinclair is also at work putting together a management training program. “In order to grow as a company like we want to grow, we need management candidates. And in order to keep good people, we have to treat them fairly and provide them opportunity. Drain cleaners can become plumbers, and plumbers can later go into management. We’re working on other training programs too, like bookkeeping and customer service, but these two are the key to stopping turnover.”
“Our job is to build a team that feels loyalty toward the company, which is something we don’t find in this industry,” adds LeBaron. “Various studies show that the reason people stay with a company is not for the money. They want recognition. They want to feel like the company cares, and that they are part of that company.
“The front-line technicians are the number one folks in our business. That’s where it really happens for us. Yet, you meet so many of them who have been employed by five different companies and weren’t happy at any of them. That’s a degrading experience. It shouldn’t be like that.”
Jarrett Robinson was with Rescue Rooter when it was bought by ServiceMaster. “One of the good things we had going at Rescue Rooter was that it had a small company feel to it,” he says. “ServiceMaster has done very well maintaining that family-type atmosphere.”
Operations
In Rescue Rooter, ServiceMaster bought a company that was already advanced far beyond industry norms in service technology and operating systems. They inherited custom computer software that enables managers to tap into real time dispatching and status reports from every service center. A daily report on finances and call analysis offers a stunning array of information.Software Services Manager Chris Yale, who designed the system for Rescue Rooter, gave me an online tour. Call data hops like magic from one spot to another on the screen as they progress from pending, to dispatch to handled. Service technicians are identified with five different color codes by skill level in order to match them to appropriate jobs. Whether due to genuine innovation or my primitive understanding, it seems that every time I witness a demo of dispatching software I walk away thinking it the best I’ve ever seen. It happened again with Rescue Rooter’s.
This technology enables them to advertise a guaranteed response to service calls within one hour. They are a flat rate company though with some variations from normal flat rate procedure. For instance, they offer a free diagnostic service instead of charging for the visit. And they haven’t yet mastered the art of using flat rate pricing as a marketing tool with price books and service plans.
Technicians get paid primarily on a commission basis, which works very well with drain cleaners but tends to meet resistance from the plumbing trade. Some service centers have plumbers working at hourly wages, and the company is in the process of putting together a company-wide pay plan that irons out the inconsistencies.
Pay scales, though, are far above industry norms. According to LeBaron, a handful of their 880 technicians can be expected to reach the $100,000 income bracket. Many others earn in the $70,000-80,000 range. He’s certain that the company-wide average is well above industry norms.
He feels the potential is even greater for the company and their techs. As a predominantly drain cleaning firm for most of its history, Rescue Rooter sells very little material and merchandise. LeBaron contends that the plumbing field offers “selling opportunities residentially that nobody is doing anything about. We see many people with fixtures 20 years old who are prime prospects for replacements and upgrades. We need to find a way to sell those folks.”
Keeping In Touch
Rescue Rooter employs four regional vice presidents as liaisons between corporate headquarters and the service center managers. As noted, they have access via the Internet to daily reports of service center operations, as well as the ability to monitor call handling in real time. A big part of their responsibility is a mandatory monthly meeting with each branch manager. This is a half-day session devoted to a standardized Monthly Operating Review that covers, in order of importance, people, operations, financial data and accounts receivable.In the people section, every technician gets reviewed in meticulous detail. They get documented for position, tenure, licensing status and progress, and promotability. The latter rates them on a scale of one to five in characteristics such as time management, level of organization, teamwork and more.
“The reason ServiceMaster excels at just about every business we’ve ever been in, is because we’re good with people and we excel in the details of running a business,” comments LeBaron. “We always have a business plan, and we are good at helping our managers become better business people.”
To grow profitably is another corner post of the ServiceMaster mission. Rescue Rooter’s net income percentage last year was about five to six times better than the industry-wide average for PHC contractors. Although proud of “exceeding every projection,” LeBaron did not boast in telling this. Instead, he noted apologetically that it was only about half as good as the profit margins registered by ServiceMaster kingpins TruGreen-ChemLawn and Terminix. He has work to do.
Room For Improvement
Rescue Rooter has never been known as a marketing company. Nor have they needed to be, because they derive about 98 percent of their revenues from the Yellow Pages. LeBaron is happy with that business but hopes to build upon it with other opportunities.Commercial service agreements represent one largely untapped area for expansion. He wants to hire salespeople to call on property managers, hotels, restaurants and other prospects.
Despite all the service companies they own, ServiceMaster has been slow to figure out a way to tap into all the synergies that surely exist among them. Cross-marketing experiments are underway in Memphis with other consumer divisions that service some 40,000 customers altogether. “Nationwide we service millions of customers, so a huge opportunity exists to leverage those relationships. We’re just trying to figure out how to go about it,” says LeBaron.
ServiceMaster does have a reputation of being as sophisticated as anyone when it comes to generating business via telemarketing. Rescue Rooter will “dabble a bit” in that area trying to come up with winning scripts.
Into The Future
Their marketing weaknesses seem pale next to ServiceMaster’s resources and expertise. Every consolidator is on a quest to become a national brand name in PHC service. Roto-Rooter has a head start, but keep your eyes peeled for a late charge by whatever identity replaces the Rescue Rooter name.LeBaron said that ServiceMaster executives often discuss a total home services future in which home and business owners can call their 1-800-We-Serve number for virtually any type of service or repair. That remains a wistful vision, however. There are still too many gaps in their array of service offerings, and LeBaron can’t see ServiceMaster offering trade services through subcontractors.
I asked LeBaron whether he thought that independent PHC companies could survive the onslaught of utility deregulation and the ever-growing list of consolidators that includes but is hardly limited to ServiceMaster. His response:
“This industry offers great opportunity for everyone. Small business owners have every bit as much opportunity as anyone else, but they have to do the right things. You have to take care of your people and provide value to the customer. If you do that, you can write your own ticket into the future. If not, you’ll struggle.”
Bill LeBaron can be reached at: Rescue Rooter, L.L.C., 860 Ridge Lake Blvd., Memphis, TN 38120-9417. Phone: 901/820-8405.
