A Promise's Foundation

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Late in 1997, Michael Gerber, author of The E-Myth, laid down a challenge to a group of remodelers attending a networking conference.

March 05, 2000

Late in 1997, Michael Gerber, author of "The E-Myth," laid down a challenge to a group of remodelers attending a networking conference. He told these remodelers that in order to separate themselves from others in their markets, they had to offer something nobody else offered. One of them, Legacy Custom Builders'' Rosie Romero, took up that challenge. In January, Legacy introduced The Impossible Promise: "We''ll do the job right, on schedule, or it is free." If Legacy breaks The Impossible Promise, the entire project is free.

 

Legacy Custom Builders Inc.

 

To succeed with the promise, Romero knows that his trade contractors must believe in it. So he''s built the framework for a partnership that not only rewards trades, but also holds them accountable for performing to Legacy standards. Because of these partnerships, as well as the other systems in place for the launch of The Impossible Promise, NAHB Research Center awarded Legacy a 2000 National Remodeling Quality Gold Award.

PR: You''ve created a roster of trade contractors called the A Team. How do they make that list?

ROMERO: We have benchmarks. To be [on the A Team] and stay there, these are the things we want: Websites, e-mail addresses, uniforms, sign our code of ethics. They are terms of employment. We want these things in place [within six months].

PR: Do these benchmarks include seniority?

ROMERO: No, that actually doesn''t include seniority. We''re being pretty subjective right now, as to how much seniority is or isn''t going to impact [selection]. I told them we were being more objective than we ever have been before. It''s gotten many people where they are in our relationship, and it''s kept them there. But it may not keep them there in the future.

 

Legacy’s Promises

 

PR: What have you promised your trade contractors in return?

ROMERO: We''re going to commit to pay them within two weeks of invoices being approved. We''re going to commit to them that as long as they''re on the A Team, they will get our radio and TV leads. Our website is generating 7,000 hits per month. When you go to our "Frequently Asked Question" section, it links to so-and-so drywall or so-and-so painting. That''s a [marketing benefit]. Our vision is that our subs will never have to estimate a Legacy job. Their subcontracts will come through the fax with the scope of work, the price and the schedule.

We don''t give deposit checks anymore. That''s a cash management regulation. A lot of guys were asking for 50 percent down on a lot of their stuff. We''re saying, "You bring your material invoice to us on the stuff you need to pre-purchase, and we''ll pay you that, your overhead and your profit on it." We tightened up our deposit schedule a little bit, but they know they still can use us as a bank. We''ll still cover out-of-pocket costs. We''ve eliminated a portion of their marketing and sales budget. In turn, I want to be buying for 10 or 15 percent less than they''re selling their retail work and 5 to 10 percent less than they''re selling to other contractors.

PR: How important are the referrals to your trade contractors?

ROMERO: For some subs, it is [very important]. Our roofer gets 100 referrals a year. He has told me that he''ll close 80 or 90 of those. They''re understanding is, "The work Legacy gets, I''m going to get. Legacy''s consistently bringing me 60 percent of my business [including the referrals]; I don''t have to go out and create a separate clientele. With Legacy''s growth pattern, all I have to do is keep Legacy happy. We can trust them; they''re not going to kick us out of bed. And as long as I hold up my part of the commitment, I''m going to get paid." They, [in turn] are going to treat those referrals just like a Legacy client.

PR: How does project scheduling work?

ROMERO: [Trades] will get a complete copy of the schedule. They know what day we''re starting the job, what day the concrete guy''s going to be there, what day the framers are going to be there, and what day they need to be there.

They''ll be given a detailed scope of work so they''ll know the project. We''ve even gotten to the point where we''re using a digital camera. They''re getting a file of photos emailed to them, along with the package that''s faxed to them. It lets them see the scope, see the job, see the schedule, see the price and put together their cash flow forecast, based on the invoicing schedule. We''re trying to make it easy for them.

PR: How are you going to grade performance after June 1?

ROMERO: Right now, our lead men fill out job reviews. That final payment cannot go out unless the lead man has completed a questionnaire on the sub''s performance. He gets a copy of it, then we put a copy in the vendor file. [The trade contractor] is also mailed a questionnaire on how we did. Were they given adequate notice? Were they given the details before? We''re going through this together. They''re grading us; we''re grading them.

And when we give a referral out, my daughter calls all the leads at six months to find out: Did they use our referrals? Were they satisfied? Were they neat, clean? We''re checking every referral we give out.

 

Trades'' Commitments
 

PR: You and the production manager choose the A Team, yet the lead does the evaluation. How do the trade contractors respond to that?

ROMERO: We''ve kicked a few subs off the list, but in the instances when it''s happened, it''s always been unanimous between production and lead man. So far, when we''re ready to jettison somebody, it''s been unanimous.

PR: The trades understand that the lead man is the representative of the company.

ROMERO: Yes.

PR: What do you do to keep the relationship from becoming adversarial?

ROMERO: The biggest thing is being clear with our expectations, and being true and consistent. Giving them the amount of work we give them helps a lot. I can only think of one instance where it''s become adversarial. That was when a new salesman shopped one of our existing subs, where we had said we''ll never do that. We straightened that out.

PR: What''s the biggest challenge you have with this?

ROMERO: [The trades] keeping up. Part of the benchmarks for the A Team is, we have them submit their financials. We don''t look at them, but we give them to an accounting office. I''m looking for a certain amount of liquidity, I want to know what their current ratio is, I want to know their base investment, their retained earnings. That increases my negotiating leverage, and it lets me help them. Most of these subcontractors don''t even know what a current ratio is. They don''t know how to compare current assets with current liabilities and use that as a measuring tool to determine the financial health of their company. We tell them, "When you submit your financials, if we don''t like what we see, it isn''t going to disqualify you. But you will have to attend a business planning seminar." [This requirement] kicks in after the six-month grace period.

PR: About 10 percent of your trade contractors are taking this seminar now. How does it work?

ROMERO: I take them through how to write a business plan. I let them know what that has done for Legacy over the past 10 years.

PR: It sounds like one-on-one mentoring, not a classroom situation.

ROMERO: It will [become a classroom]. As word spreads what these guys are learning, we''re getting more [requests]. The reason we have subcontractors waiting to get on our A Team is because the word''s out that we do what we say we''re going to do.

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