With a market that's worse than many remodelers have seen in years — if ever — the easiest thing to do is take a play-it-safe approach and avoid any risks. On the other hand, it can be an opportunity to grab market share by taking smart chances. Professional Remodeler talked to three groups of remodelers that are partnering to form new business ventures they believe will not only help them get through the downturn but also put them in a better position than the competition when the market recovers. Their stories follow:
Suburban remodelers Scott Sevon (left) and Mike Nagel had long resisted working in the city of Chicago, but a new partnership with an established developer has made the transition easier. Photo by Marc Berlow
Remodelers Mike Nagel of Remodel One in Roselle, Ill., and Scott and Janice Sevon of Sevvonco in Palatine, Ill., have partnered with developers Alan Lev and Jacob Kaufman of Chicago-based Belgravia Group to form a remodeling and maintenance company in the city.
Nagel and the Sevons have formed an LLC, Men at Work Chicago, which holds the majority stake in Belgravia Plus, and will continue to operate their suburban firms.
If a couple of years ago you'd asked Scott Sevon and Mike Nagel if they'd do a project in the city of Chicago, they'd have quickly rejected the idea.
Despite more than 25 years experience running separate remodeling companies in the city's suburbs, the two had long steered clear of the challenges of urban remodeling. That all changed when they were approached last year by Alan Lev, president of Chicago builder Belgravia Group. The three had known each other for years through their membership and leadership in the Home Builders Association of Greater Chicago, the local NAHB chapter.
Lev told Nagel and Sevon that Belgravia was looking for someone to start a remodeling division to meet the needs of the residents of the thousands of homes, townhomes and condos the company has built over the years. After several months of discussion they decided to form a new company, Belgravia Plus, in partnership with Belgravia. Belgravia's experience working in the city made the deal attractive to the two suburban remodelers.
“They've been working in the city for 30 years. They know the city inside and out,” Nagel says. “They got our license for us; they're doing all that kind of bureaucratic stuff in the background for us.”
Belgravia also offered a stellar reputation; in-house resources such as marketing and legal; and a contact database of nearly 30,000 owners, past owners and leads.
“We saw a lot of benefits from working with them,” Sevon says. “They have relationships that open doors all over the city that we probably couldn't open on our own.”
The partners' new company offers five services to its clients:
• Assessments: In what is essentially a home check-up, the company sends a licensed inspector to determine the repair needs of the home, looking at items such as fixtures and cabinets.
• Maintenance: Continuing off of the assessments, the company then can produce a maintenance program to address the ongoing needs of the owner. This can include services such as changing light bulbs or maintaining the HVAC system and other mechanicals.
• Remodeling: This includes anything from a couple of hours of handyman work to whole house/condo remodels.
• Interior design: This can be part of the remodeling process or a stand-alone service.
• Concierge service: Under the concierge umbrella, Belgravia Plus will arrange cleaning, manage deliveries and provide myriad other services.
The idea is to be a full-service operation for the busy owners, 80 percent who own multiple residences.
“Anything they need that has to do with their home, we can do that for them,” Nagel says.
Since starting up in November, most of the work has been under $10,000, although the company has discussed some larger remodels with clients. The maintenance packages, which average $1,500 to $3,000, have proven to be the most popular thus far.
“We didn't think this maintenance and analysis end of the business was going to be as big as it may be turning out to be, because we didn't know that people were on as much of a run as they are today,” Sevon says. “We offer that to consumers in the suburban area, but we aren't as deep into it.”
While the current economy is probably playing a role in the prevalence of smaller projects, the company has also only targeted the newest residents with its direct marketing efforts so far. Because it is such a large database, the company plans to target the owners in small groups, with the newest ones first. That plan allows Belgravia Plus to get comfortable with smaller services before tackling a lot of large remodeling projects, Sevon says.
“If we had seven kitchens tomorrow, we'd be a little taxed,” he says. “We will get a lot of that type of work, especially if it's coupled with a change in attitude and an economic stimulus package.”
Even in the current economy, Nagel and Sevon remain convinced the new venture is a smart one.
“It is a little scary,” Sevon admits. “We've got personal funds in there, and quite a bit. We know how desperate the industry is right now.”
It's tough to look at the costs of starting a new business and not get nervous, they say. For just one example, take the marketing plan, which accounted for a third of the company's budget this year and was more than Remodel One and Sevvonco have spent on marketing in the last five years combined.
If they can make it through this, though, the company will be well-positioned to succeed as the market recovers.
“One of the reasons we decided to do it, even in this economy, is because by the time things turnaround, we're going to be moving along pretty well versus starting something up at that time,” Nagel says.
The slow economy has also allowed both Sevon and Nagel to spend more time on the new business than they would have been able to when things were booming.
“If I was as busy as I was a year-and-a-half ago, it would be a lot more difficult,” Nagel says. “It's kind of a blessing that we are a little more slow in the suburbs.”
Brothers Michael (left) and Tommy (center) Strong are merging with Jeff Hunt to form what they believe will be a dominant force in the Houston remodeling market.
Photo by Dave Einsel/Getty Images
Jeff Hunt of Heritage Construction in Houston and Michael and Tommy Strong of Brothers Strong, also in Houston, are joining together to create MTJ LP dba Brothers Strong, a new remodeling company operating as of Jan. 1. Hunt and Michael Strong each own 37.5 percent of the new partnership; Tommy Strong owns the remaining 25 percent. They'll shut down Heritage and the original Brothers Strong after all work sold by those companies last year is completed.
Until recent months the Houston housing market had resisted the downturn that was hitting the rest of the country with high oil prices and a bustling local economy to keep remodeling and building booming.
Even in a strong market, though, Michael and Tommy Strong of Brothers Strong and Jeff Hunt of Heritage Construction saw value in merging their two Houston design/build firms.
“Those conditions didn't exist down here when we started talking about this,” says Michael Strong. “It's only in the last few months that we've felt this whole economic meltdown with these housing issues creeping into the Houston market. We think that makes this make even more sense, but it's really just a secondary benefit.”
Hunt and the Strongs found themselves in a situation familiar to many remodelers: Doing a steady $1 million a year in business, give or take, with satisfied customers and a nice referral base, but limited opportunities for growth.
“The big driver from the Brothers Strong perspective was that we'd found ourselves having plateaued in the marketplace,” Michael Strong says. “We'd grown flat. We needed new blood, new perspective.”
The idea for the merger came during a Remodelers Advantage meeting last April. During the session, Michael Strong had what he describes as “an epiphany” and drew out a new organizational chart right then and there that incorporated Hunt into the company.
“I passed it to Tommy and he got excited, and we knew this was a great idea,” he says.
Hunt immediately came to mind because the three knew and respected each other from years together in the local and national NAHB meetings and other activities.
“We wanted a cultural match, somebody we knew, somebody that shared the same ethics, the same priorities, the same reputation in the marketplace,” Michael Strong says.
As soon as the Strongs got back to Houston, they put the new organizational chart up on a whiteboard in their office and invited Hunt to see it.
“I was thrilled; I was excited right away,” Hunt says. “Yeah, I wanted to do some due diligence and spend some time thinking about it, but it all made sense.”
Although the new company will do business under the Brothers Strong name, it's actually a new limited partnership owned by the Strongs and Hunt.
The partners decided to use the Brothers Strong name because of its greater name recognition in the Houston marketplace. The company has been around for 18 years compared to Heritage's six years in business.
It was actually Hunt's idea to keep the name. Because of the company's history and Michael Strong's appearances on television and radio shows, Brothers Strong was simply better known, he says.
“If we just put ego aside and forgot what the name of the company was, I knew we could really build some neat things,” Hunt says.
Many owners are unwilling to do that, and that's why mergers and partnerships don't succeed, all three say. Both the Strongs and Hunt had to be willing to compromise to make the merger work.
The new partners had weekly meetings starting in May to iron out all the details of the new company. Even when it comes to something as simple as to which forms to use, egos can also play a role.
“You have to put a lot of personal things aside that you may have helped create and realize there's a better way to do things,” Tommy Strong says. “Half the time our existing organization was doing it better and half the time we realized there were other ways out there to do certain tasks.”
Despite the challenges, Hunt and the Strongs expect several advantages from the new company.
Heritage and the old Brothers Strong both worked in the same area, the northwest side of Houston. The two companies were just about the only “real competition” for each other, Hunt says — that is, professional companies that were delivering high-quality design/build work. By combining forces, the two companies are able to take advantage of the strengths of each of the partners.
“I saw Jeff as being able to fill some of the soft spots in our organization, specifically related to sales and day-to-day management, both of which he's very good at,” Tommy Strong says.
At the same time, the new company frees Hunt up from the pressures of being the sole decision maker. Heritage was a lean operation where Hunt had to wear most of the hats in the company, from sales to management to production.
“At my company, we had two project managers, two field managers and me,” he says. “Production was limited. There was no way to grow that.”
In the new Brothers Strong, Tommy Strong will serve as vice president of construction operations and oversee all production. Michael Strong, as president, and Hunt, as vice president of sales and administration, will share responsibility for sales and day-to-day management.
“We're going to benefit from his sales experience and his ability to run a company,” Tommy Strong says. “Jeff will benefit from a larger structure and not having to do everything.”
The biggest benefit, which may become even more important if Houston follows the rest of the country into the housing crisis, is that the new company has more people to help make the important decisions.
“Our working together here … just raises the level of opportunity out there so much higher,” Michael Strong says. “It's just so good not to be alone out there.”
Dave Heaney is looking for remodeler partners to deliver remodeling solutions for medical offices around the country, a niche he thinks can help make it through the slowdown in residential remodeling. Photo by Joshua Roberts/Getty Images
Dave Heaney, founder and president of Rockland, is taking its Healthcare Facilities Solutions subsidiary — which focuses on remodeling medical offices — national by partnering with remodelers in other markets to build the projects from his company's designs.
He already has partnerships in the works with three other firms and is talking to more than a dozen others about working together.
For years, Dave Heaney has been specializing in medical office remodels, first through his design/build firm Rockland and more recently through its Healthcare Facilities Solutions subsidiary.
But it wasn't until last year that he decided to take the company national by partnering with other remodelers around the country. That decision was prompted by the realization that in many cases he wasn't physically visiting the site anymore, even for some local jobs.
“Many of our clients were just looking for a feasibility study as they're looking for a new space to rent or purchase, to make sure it would work for their needs,” Heaney says. “In many cases, they would just send over the electronic layout of the blank shell or existing offices that needed to be redone, and we never even saw the site.”
If that worked locally, why couldn't it work in other markets, Heaney figured. He started doing some light targeted marketing to professional audiences such as plastic surgeons and cardiologists and immediately received responses.
Heaney could only offer design services in those remote markets, not construction. In some cases, that was all clients wanted, but others were also looking for construction services.
“I'm a huge believer in design/build, so I wanted to figure out a way we could offer both services even if we're not physically there,” he says.
Through his membership in Remodelers Advantage, Heaney knows hundreds of remodelers across the country. With many of them complaining about the slowing market, he thought the time might be ripe to contact them about performing light commercial work in partnership with him. Shortly before Thanksgiving last year, he sent out e-mails to 200 contractors about the program.
“In the first day I heard back from 25 of them,” Heaney says. “The demand was clearly there.”
The program is just getting started, but Heaney is already working with companies in North Carolina, Pennsylvania and Virginia on potential projects and talking to more than a dozen other firms. He plans to focus the efforts on large and medium-size cities.
“If we can sync up with people in major markets, it can be a win/win,” he says. “It's better for all parties, including the client because they have a team working together.”
HFS benefits because Heaney knows a trusted partner is building the company's design. The local remodelers benefit from not having to design a type of project they're unfamiliar with.
“If they can offer a turnkey design/build scenario, that appeals to everybody,” Heaney says.
The jobs can come about either through the local remodeler or through Heaney's marketing efforts. HFS advertises nationally in publications targeted to the medical community, which generates some business but can be unpredictable.
“We're going to find opportunities that we can share with these remodelers, and they're also going to have a warm market in their circle of influence locally,” he says. “They can find opportunities, and collectively as a team we can find a solution that fits the client's needs.”
The financial model varies from project to project depending on how the work is divided.
“Ideally, we get compensated for design, they get compensated for construction — but we work as a team,” Heaney says. “There is going to be overlap in some cases. We recognize some people have expertise in healthcare and with very little support from us can jump right back into it.”
Heaney says there's no reason the distance should be much of a challenge. He is sure the model can work as long as HFS can find the right companies with which to partner.
“The challenge will be that we are two different companies, but as long as we align ourselves with companies that are philosophically similar, that shouldn't be that big of a challenge,” he says.
That's why Heaney is taking his time with the new venture. He realizes that a poor execution of an HFS design reflects badly on the company no matter who installs it and could hurt his goal of building a national reputation in the medical community.
“It's just like a design/build project,” he says. “We want to make sure we're asking all the questions that need to be asked ahead of time and don't get surprised.”
Heaney first focused on remodeling medical facilities because he wanted his company to be good at one thing. The company's years of experience should make it easier to be successful, he says, and gives HFS an advantage over competitors that may offer a variety of services.
“With the modern technology, we've created a very efficient design process,” he says. “Because that's all we do, I feel like we can offer a better value because we are so efficient.”