When times are Tight

Building service contractors often sleep easy during an economic downturn, thinking that their businesses are typically recession-resistant. However, today’s economy is unlike any other the country has seen and that may have BSCs worried about what will happen if their customers fall victim to recent market downturns.

Plus, a slowing economy isn’t the only time customers can hit tough times. Labor disputes, mismanagement and downsizing all can leave cleaning less necessary. Contractors must stay in close communication with all of their customers to stay abreast of any threats, and they must prepare for the worst.

At first, when a customer comes into trouble, it seems like bad news — if the company’s not going to be in operation, there are no conference rooms to clean, desks to wipe or hallways to sweep. But companies don’t always go under. In fact the majority of customers who hit tough times face layoffs or budget cuts, which actually can offer an opportunity for BSCs to shine. In fact, it’s a good time for BSCs to tailor their marketing to the economic slowdown.

Just because times are tough doesn’t mean customers won’t clean their buildings — they still have to have a certain level of cleanliness to assure their products or services are not compromised, says Rod Reames, former owner of Clola Enterprises Inc., Austin, Texas, now part of Associated Building Services.

Savvy contractors can turn a potential pink slip into trimmed services until problems smooth over with the right approach. It’s up to a contractor to let clients know that this is an option when money is tight.

“You just get there in line and say, ‘We want to be there to help you,’” says Reames. “And when they say, ‘Cut back my service costs’ you need to say, ‘How can I achieve that but at the same time provide services to my customers?’”

If you hold your ground on prices and try alternatives to maintain quality in a way that helps the customer meet their budget, then when the good times come back, you can get almost any job, Reames adds.

Contractors also can learn from colleagues who have faced tough times in more volatile markets such as the currently fluctuating high-tech industries or the ever economy-dependent construction industry. Even the entertainment industry has offered its share of hard knocks for BSCs.

Dot-com to dot-gone
The business sections of newspapers are packed with news about company layoffs in the high-tech industry, especially computer-chip manufacturers and e-commerce companies.

It’s a dramatic shift from 1999 and 2000, when sky-high stocks expanded the fledgling Nasdaq stock market beyond expectation and brought daily record highs to the Dow Jones. With all that cash flowing into the popular stocks, high-tech companies were able to expand staffing and building space at a rapid pace, needing additional cleaning to support them. But as the companies shrink to a more manageable size or go out of business altogether, their cleaning has decreased proportionally.

Any company could find itself amid similar activity if a customer does an about-face as many in this market have.

Service Employees International Union Local 1877 predicts that about 400 janitors in Silicon Valley will lose their jobs due to the decline of high-tech companies in the coming months.

Yet, while some contractors have found themselves completely shut out of accounts, most realize that total losses are a rarity.

“The things you cannot do without are trash pick-up and restroom sanitation,” says Raffy Espiritu, president of Clean Building Services Corp. in Santa Clara, Calif. Clean Building Services has Intel, Yahoo!, Apple Computer, Sun Microsystems and Hewlett-Packard among its neighbors.

While not every high-tech company is drastically slashing costs, the shutdown of one of Espiritu’s customer’s business was quite sudden, and enough to teach him an important lesson.

“One night we went to clean and we could not get access to the company,” says Espiritu. “And the following morning when we returned, people were inside discussing liquidation.” A voice-mail box was the only way to communicate with the customer and the account was lost.

BSCs need to make sure that they have enough close contact with customers to notice early signs of trouble. And if that doesn’t happen, at least they will have a better chance of contacting someone in a situation such as Espiritu’s.

Knowing that more companies could cut costs in his area, Espiritu even has recruited marketing students from a local university to work on creating a new marketing plan in light of the current economic slowdown.

“We have to be very creative to get through the door,” he says. “The smarter fellows will create opportunities during a crisis. It opens up opportunities for people to market their strengths and win.”

When news of a slowdown hit one of its Texas customers, Associated had enough time to give the customer a “menu” of suggested cleaning tasks to do away with and ones to continue.

“You don’t automatically want to cut back services,” says Reames, “because you may be the one that is blamed for sloppy housekeeping.” But contractors do want to offer the option for their customers to rearrange services themselves.

Diversified Maintenance Services in South Pasadena, Calif., frequently cleans high-tech companies in Silicon Valley and has not been hit by the dot-com fizzle, but it has diversified into the entertainment industry and others to maintain a solid portfolio, just in case. If one market falls on tough times, Diversified’s experience in other fields will help attract more stable accounts, says Armando DeCastro, DMS chairman.

Cleaning up or cleaning out
One field that is more likely to dry up during recession is post-construction clean-up. The building boom in the ‘70s and early ‘80s fostered many new construction clean-up companies. And those entering that niche, even by accident, found it quite profitable. But new construction often is the first market to slow down with a tough economy.

Until recently, real estate developers had been cautious to avoid the tough knocks they felt during the recession of the late 1980s and early 1990s. That occurred after too much overbuilding led to a commercial office vacancy rate close to 20 percent. This year, it seems commercial developers have been remiss. A decline in the high-tech markets which initially fueled today’s building boom may leave much of the 163.3 million square feet of speculative space they expect to deliver this year in jeopardy of remaining vacant.

While the commercial construction industry doesn’t expect to have as tough of a time as it did a decade ago, it does expect increased vacancy rates to lead to slower construction if markets don’t rebound soon. That means work for post construction cleaners now, but a potential decrease by the end of the year in certain areas of the country. Areas expected to have overbuilding in the next few quarters, according to a recent Merrill Lynch report, include downtown Minneapolis; Columbus, Ohio; Cambridge, Mass.; Atlanta’s midtown; Seattle’s East Side; San Jose, Calif.; and suburbs of Cincinnati, Austin, Texas and Orlando. Fla.

So, although hammers are still swinging into frameworks for shopping malls, airports, subdivisions and office parks across the country, the question is how long before the construction market collapses?

Forty percent of Philadelphia-based City Cleaning Services’ business is post-construction clean-up. The company hasn’t yet experienced a loss of post-construction clean-up work, and two years of work is in the pipeline. But president Georgia Shafia says she is well aware that if a recession starts to cut into new construction, she’ll have to determine what else City Cleaning can do to make up for lost income. She has diversified her company enough to avoid a major hit if construction clean-up dwindles — something that is wise even if times aren’t tough.

That’s because post-construction clean-up work can take six to eight months to receive payment, says Shafia. Having a good mix of regular commercial cleaning accounts that have much shorter pay cycles helps offset the typical waiting period for post-construction clean-up pay.

That longer payment time could come back to bite contractors if a recession does hit and they aren’t prepared — another reason to keep in close contact with customers to monitor accounts.

If a BSC fears a recession, they should do a customer cost-analysis every six months, says Rick Avelenda, co-owner of Clean Sweep of New Jersey in Bricktown, N.J. If some clients are not paid up, then consider dropping them, he says.

“You have to, right off the bat, set your payment schedules and stick with it. Don’t waver or you could eat up a lot of debt,” he says. “Your biggest asset is your cash flow. You always have to have that, or you get burned.”

Avelenda also advocates an aggressive sales strategy that keeps his cleaning company in the forefront of many local developers’ minds. When he spots a new development along the side of the road, he enters the on-site trailer and passes out his business card. He then follows up every four to six weeks with the client.General cleaners could use a similar tactic to clean new buildings once they’re open.

“A lot of times, people there never thought of [post-construction clean-up] and then I kind of keep my face in front of the person,” says Avelenda. With post-construction clean-up work, he says, “you don’t always get people knocking down your door to work with you.” And in a recession, that aggressiveness may be more necessary to keep a steady stream of business.

Sometimes, during a recession, developers will call around to cleaning contractors to see which is giving them the best deal, but Avelenda says a strong relationship will prevail if it comes down to cost versus quality.

Take two: Entertainment-industry strike?
Not every industry needs a dip in the economy to turn sour. The first half of 2001, BSCs near Hollywood, Calif. were crossing their fingers fearing a strike by the Writers Guild of America (WGA). In May a three-year tentative contract agreement between producers and WGA was reached that averted the possibility of a strike. At press time, a new contract had been negotiated, but not voted on, by the Screen Actors Guild (SAG) and the American Federation of Television and Radio Artists with the Alliance of Motion Picture and Television Producers.

The WGA settlement was “a big deal,” says Michael Rosen, vice president of Partners Cleaning LLC in New York City. “With the pending strike we thought that nobody was going to be working.” Partners Cleaning provides cleaning services for movie studios on location at Hudson River Stage in Yonkers, N.Y., used to film movies for Miramax and Paramount. The studio has 14 acres of land and several buildings.

Had there been a WGA strike, executive offices still would need to be cleaned, but the frequency could have gone down because non-working writers wouldn’t be using the offices, says DMS’ DeCastro.

“Commercial buildings don’t go on strike,” he admits. Restrooms still need cleaning no matter how many employees use them. But there might be fewer paper baskets to empty and fewer desks to clean, he adds. DMS cleans Disney Studios, Universal Studios, Paramount Pictures and Sony Pictures.

A SAG strike would be less disastrous for BSCs, says DeCastro, because actors don’t have thousands of square feet of office space in the studios, which is what contractors rely on.

Yet, if a strike or a slowdown is imminent, DeCastro suggests working with the customer early on to create a contingency plan before the customer has to ask for help. About 18 months ago, he sat down with an executive at Disney Studios and made plans to lower frequency and reduce staff by 10 percent should a strike hit.

“If you know it’s coming, you partner with the customer and determine any obstacles or delays,” DeCastro says. “If we were alerted there might be a strike, we would have cut back. How much we don’t know.”

Long before the WGA strike settlement, Ben Law, president and CEO of BLR & Associates in Tustin, Calif., learned the hard way what happens when a movie studio hits hard times.

In December, Law quit his job as an upper-level manager in the retail industry so he could clean Moon Crescent Studios full-time. The 54,000-square-foot studio in El Segundo, Calif. seemed like a promising customer; it had invested in 200 employees and a lot of high-end office equipment, says Law.

But two months after BLR & Associates and its 12 employees signed on to full-time duties for the studio, Moon Crescent shut its doors with just a week’s notice. Law says his company lost about $5,000 in unpaid bills and much more in long-term expected revenues.

Law’s story does have a profit-rich sequel: He quickly picked up two new accounts and redesigned his business plan, which he says is imperative if a contractor loses too much business and falls on tough times. The biggest asset at that point is the ability to rebound quickly, and to have some capital if you do fall short, he adds.

Kristine Hansen is a frequent contributor to Contracting Profits. She is based in Madison, Wis.