As the twig is bent, so grows the tree. We’ve all heard that old saying about raising children. It applies equally well to growing up in the trade.
You’ve heard me refer many times to “the blind leading the blind” in our industry. I’m referring to the same mistakes that get passed on generation after generation, pertaining both to trade practices and the business of contracting. Those of us who go into business for ourselves tend to learn how to do things from our old bosses, and those bosses learned from their old bosses. Unfortunately, if the original boss didn’t know what he was doing, this mode of education reinforces all of his bad habits. About 90 percent of the contractors in this industry have been thoroughly drilled with bad habits to the point where they can’t even conceive of different ways of doing things.
How did I avoid this fate? Turning back the clock on my career, I think my first good fortune was that I was not the son of a PHC contractor. Thank God! As a result, I didn’t have bad habits drilled into me from an early age.
I entered the industry as an apprentice plumber in 1950 simply because I was attracted to the trade. I had an aptitude for mechanical work and thought the plumbing field presented great opportunities to earn a living.
The Spice Of LifeDuring that five-year period, our local union had a rule that no apprentice served more than 10 months in any one shop. From an apprentice’s point of view, this kept things interesting. If you didn’t like a certain boss, you only had to put up with him for less than a year. Plus, you got to learn many different facets of the business. I had the opportunity to be exposed to new home construction, service and repair, large commercial construction, you name it. I was the best lead wiper in my apprentice class, and I did my share of it as an apprentice and as a journeyman.
During this rotation period, I had the opportunity to observe how different shops operated. On one large commercial job, I actually was employed by two contractors — meaning that the original guy went broke and the bonding company took over. One of the service and repair shops that I worked for also bit the dust.
I worked in and drove rust-bucket trucks back then, because those hard-working “slugs” couldn’t afford anything better. And that’s because they did not know how to make money. There was nobody around to teach them! They were wonderful people and some of the best mechanics around, but among the world’s worst business managers. It seems nothing has changed over the past 50 years.
The Twig BendsThat experience working for a couple of losers left an indelible mark on me. I not only learned the mechanics of the trade, I also learned that if I ever went into business, I would try to do things different than those contractors.
I received my journeyman card in 1955 and promptly went to work for a T&M service and repair shop. Back in those good old days, I remember customers asking me what the damn job was going to cost in total, and I could not tell them. I personally experienced the wrath of customers complaining about the exorbitant hourly rates that I quoted. This was another great learning experience. I thought, there has to be a better way! But what the hell did I know? And at the time, there was nobody else around who knew of a better way.
On Feb. 1, 1960, I started my business with a $650 “grubstake.” I took out a second mortgage on my house so I could construct a 3-1/2 car garage to operate from. During those days, the sky was full of sawdust in the Milwaukee area, home building being a hot market. I did my share of plumbing those new homes. Not being satisfied with the low profits and return on investment, I thought the big money was in new commercial construction. Over time, I learned it was not there either.
I reached $10 million annual sales in 1970, but couldn’t make any money. I decided to get the hell out of that cutthroat market. I was tired of begging for my money, low profitability, and low owner compensation. I made the switch to service and repair, thinking that was a market void of ignorance. I was badly mistaken.
Bad AdviceBy this time I had become an astute business person, always knowing precisely what it cost me to operate my new construction company. I immediately created various pro formas and business plans for a service and repair business, where overhead is much higher than in new construction. To my amazement, I discovered overhead to be three times higher for this market activity.
The gurus have been telling us forever that “you’ve got to shop the competition,” and you’ve got to be in the same “ballpark” with your prices. Well, I did shop the competition, just as contractors do today. It became apparent to me that the selling price of labor was established by some idiot, and the rest of the idiots followed suit. Their numbers certainly did not jibe with the numbers that were in my pro formas.
So what to do? Follow everyone else charging the “normal and customary” price and make no money, as before? Or dare to be different?
A “Crash” Course: It so happens that I had a brother, Jim, who owned a new car dealership selling Volvos, Saabs and Alfa Romeos. He also has a full service department — body shop and mechanics.
At the time I observed those shops using reference books for all types of body and mechanical work. Those books then, as now, were called the “Ward Crash Book.” They included labor factors for any imaginable task associated with auto repairs. They were quoting flat rate prices way back in 1971.
The answer to my dilemma was right before my eyes. We immediately produced our own flat rate books with selling prices that emanated from rock solid “numbers crunching.” Knowing our costs served as the foundation for our selling prices then, as they do today.
Many people have referred to me as the “Godfather” of flat rate pricing in our industry. Some don’t mean it as a compliment, but I am proud of this moniker! I produced the first flat rate book for contractors 15 years ago. Many of my dearest friends were introduced to this concept and are very successful contractors today as a result.
Not only is it good for contractors, consumers also want to know what it costs before they decide to pull out their checkbooks. Don’t you think?
Sounding OffHow it annoys me for others to accuse me and others who present prices up front as being “unethical,” and “ripping off the public.” I would like to ask my critics to answer the following.
1. How could Blau Plumbing have survived for almost three decades as a service company, especially in this era of consumerism, ripping off the public?
2. How can my company field 20,000-plus service calls per year, with more than 85 percent of our business coming from repeat clientele, if we are unethical and ripping off the public?
3. How can companies that use upfront pricing continue to attract new customers at a 10-15 percent growth rate a year, as so many of my followers do? I don’t mean in revenues, I mean in the actual number of new clients.
4. What is unethical about a company making money that results in good livings for dozens of employees, plus considerable charitable givebacks to the community?
Suppose you were a public company. Would Wall Street, i.e., the investing public, want to buy your stock offerings? At what price?
Recently, Service Experts’ share price dropped by about a third in a single day. They, like the former American Residential Services (ARS), blamed their low-profit performance on unfavorable weather. Actually, I think the investing public knows better. The investors sense that these companies are not selling their product at the right price, and as long as they fail to do so, their profits will lag behind expectations.
How many of you receive a P&L statement with 10-12 days of the previous month’s business - in time to take corrective action when things head south?
How many of you earned over $75,000 last year, like some of my service technicians!
How many of you and your faithful associates will enjoy a comfortable retirement thanks to a company-funded retirement program?
How many of you who continue to follow the blind will be in business five years from now?