It seems whenever you read a paper these days, you hear of another company in serious trouble. Most major markets have been hurt by the failure of the “dot.com” industry or corporate scandal, and property managers are left with buildings nearly empty with few prospects to fill the vacant space.

It may seem difficult, or even impossible, for building service contractors to grow their businesses during this turbulent time. But the truth is, the building services industry growth cycle always has been somewhat of a roller coaster, and it seems to take a wild ride every seven or eight years. A company’s market position, business strategy and willingness to take lower profits are the determining factors of whether growth is still possible during these times.

Companies that have anticipated a possible decline in market growth will increase their efforts to maintain a position in the market despite shrinking accounts. Many of the smaller BSCs will not be able to weather the storm and may choose to exit the market. The firms that can maintain a position in this segment are those that are open to accepting lower-than-average returns on new sales, and by doing so, can defend their positions from competitive forces. The players left behind begin a bitter warfare.

Not only are new sales necessary, but the maintenance of existing accounts becomes more important than ever before. It costs more to gain new business than to keep existing accounts, so every current client should be treated as valuable as a new customer.

The end game can be profitable for the industry survivors by employing the following defensive business strategic alternatives:

Rx #1: Reduce unnecessary overhead
A careful and thorough look at operating costs will be critical during this period. Any unnecessary expenditure should be eliminated. Excessive company vehicles, cell phones or redundant positions should be eliminated first; then, institute strict cost controls in every account so that the maximum return on each sales dollar can be realized.

In overhead reduction, it may be necessary to close the weak branches that cannot successfully be rehabilitated. Not every location will be a money maker, so to improve the bottom line of the organization, sections or business segments may need to close.

However, reductions should not apply to the sales force. The mistake many companies make is to reduce the sales force when an all-out effort should be to solicit new business. To compensate, a temporarily lower commission structure might be necessary.

Rx#2: Offer temporary price reductions and discounts
Your competitive edge also may include offering your key account clients a temporary price reduction for a term of six months with a codicil to review the fee structure each additional 90 days. This demonstrates your willingness to assist the customer in its cost-control program, and may offer your firm the right leverage to keep your competitor out of the account. A word of caution with this tactic — know what your lowest price can be while still turning a profit or this move may be too risky.

A further competitive approach is to extend creative payment terms to your clients. It might be highly advantageous during the bid process if your company offers 45-day payment terms versus 30-day terms, or a 2 percent quick-pay discount rather than a 1 percent reduction. Especially for high volume business, the difference of 15 days or 1 percent might be substantial to the client.

An alternative cost-reduction method is to offer a rebate program at the annual renewal time. This rebate need not be in the form of actual dollars, but as “bonus bucks” the client can redeem for free carpet cleaning or other ancillary services. The goal is to do anything that keeps your competitor out of the buyer’s basket.

Rx#3: Create a niche
The objective of creating a niche with your clients is to build a relationship that is painful for that company to lose. Providing warehousing labor, offering discounted supplies or plant-management services all can work, but the niche must provide the customer with a significant overall cost reduction in its operating budget to be appealing.

Designing your company’s niche, however, must be a service or product that easily fits into your structure without significant increases in costs. A repressed market is not the time to diversify into new and uncharted territory for your company.

Rx#4: Be the best at what you do
A weakening economy raises the stakes for the competitors that stay in the industry by precipitating the need for improvement in our service processes. Lower prices and niche marketing alone will not keep a business on the rise. BSCs must make sure they are providing the very best service possible.

Customers must trust their vendors, and that trust will be earned by excellent, reliable and consistent service. The only edge your company may have, if it cannot compete at or match rock bottom prices, is in the quality of your service, so it had better be great. Keep your eyes focused on the customer and push constant improvement in your employees. Evaluate your training programs and provide systemic support for the work force.

Rx#5: Keep your visibility high
Now is not the time to pull back from customer visits, new sales calls or to lessen your activity in the local trade associations. Customers and prospects expect to see you at functions such as local BOMA or IFMA meetings, so keep your exposure and visibility high.

Prospects have short-term memory loss when it is time to solicit bids. It seems as though the last three vendors through the door, plus the incumbent, are the ones that get invited to bid. When they don’t see familiar faces or have company literature readily available on their desk, they tend toward the perception that you are no longer in the industry or are not interested in their business.

The good news is that our industry tide always turns back around. Each BSC must develop a competitive strategy that fits the culture of their market and company, seek service improvement, make economic decisions cautiously and stay focused on the business at hand. By using these techniques, your company will be positioned properly when the market booms again.

Dannette Young is vice president of United Building Maintenance, Inc., Dallas. She has served on the board of directors for Building Service Contractors Association International and the advisory board for Procter & Gamble.




POSTED ON: 10/1/2002