5 years later

Features - Cover Story: State of the Industry

The down years weren’t all bad. Many contractors got leaner, smarter or even bigger. This year’s State of the Industry Report connects the dots from when the economy bottomed out five years ago to today.

October 4, 2013
Kristen Hampshire

For some, the last five years were a wrinkle in time. Finally, revenues in 2013 are on pace to meet or beat 2008, before the economy bottomed out. This year feels like shaking off after a sweaty, bad dream when you wake up wondering: What the hell happened here?

For others, the recession years were like running a business headquartered in quicksand. You had to fight so you didn’t sink. But you got really strong swimming against gravity like that.

Then there were companies that admit they were somewhat insulated from the economic catastrophe because of their market, their customer base or complete anomalies – a good snow, a lucky break with a multi-millionaire client, good timing. Of course, many companies didn’t survive this. And to be fair, the story you’re reading is a bit skewed because we talked to landscapers who are still in business. Survivors. The ones who had to cut back, invest their personal savings to keep things alive or who were positioned to eat up market share in vulnerable times.

“I feel like I just went through the ‘Biggest Loser’ where we show up, we don’t know what to do and by the time we’re done, we come out feeling great and ready to roll,” says Russ Marsan, owner of Carpenter & Costin in Rutland, Vt. “I just feel like a whole different person.”

Here are snapshots from across the country – stories that illustrate how landscape businesses were faring in 2008 before the crash, how they responded in those dark times, and why the last five years have changed these companies forever. Sure, we all have a few signs of aging thanks to this economic recession. But most of us look in the mirror and see a more distinguished, wise and mature business that’s ready to face the future.

Switching the mix after a merger

Three weeks after Marsan merged with a neighboring landscape firm in 2009 – expecting that combining forces, networks and talent would position the company for success during the downturn – the fresh new entity lost $1 million in business. Just like that.

“We lost about 50 business clients who canceled projects,” he says. “We had a major free-fall and it really shook myself and my partner to the epicenter – right to the core.”

In 2008, Marsan’s business had the best year in its history. Back then, the operation was 75 percent construction and 25 percent maintenance/snow. Today, that business model has flip-flopped. Three-quarters of revenues come from recurring services after an aggressive shift in 2009 toward commercial maintenance.

Vermont is a different market, Marsan admits. And in his region, which is rural, the switch to commercial was a survival move. “We’re very much unlike the suburbs of Boston where there are a lot of affluent single-family residents,” Marsan says, calling central Vermont a somewhat limited market. “The best way for us to afford our overhead and succeed was to focus on what was available, and there was a pretty good opportunity in the commercial end of things.”

Of course, Marsan didn’t expect the bottom to drop out when he merged with another company about 20 percent of his firm’s size. So that bounce to commercial was a survival tactic, and one that stuck. As for the partnership, it helped the business stay strong during tough times. “We knew two different networks, so that was a great opportunity for us to mesh our customer capacity,” Marsan says.

The company has grown from about 15 employees to 30 since 2008, before the merger and the economic bust. But the ship runs tighter. Profit triangle was not a phrase Marsan used in 2008. It is today.

Now he runs two-man crews – not crews with three, four or five members. The workweek is one day shorter. The business runs Monday through Thursday. “That cuts 10 hours, reduces 20 percent of road time and that means cutting back on 20 percent of my setup and breakdown on jobs, drive time, etc.,” Marsan says.

He’s lean. But what does that mean exactly?

“Benchmarking,” Marsan says. “Profit equals opportunity for growth, equals great customer service, equals team-building.”

“When I think lean, I think profit,” Marsan continues. “I think maximum efficiency. That means taking a daylong project, doing it 10 percent faster and therefore reducing expenses on that job.”

And as for now – and 2014? Last year, the company finally hit the $2.2 million mark, a goal Marsan set in 2009. “It took us this long to get back to that point, and it was a long road,” he says. This year could look like $2.5 to $2.75 million. With a branch office open in New Hampshire, there are two locations and more opportunity for growth. “It’s going to be even better,” he says of the future.

Forward again in 2013

“I put all my life savings into the business.” Zech Strauser didn’t pull back during the recession. Instead, he put his financial life on the line and pulled about $300,000 from his personal savings to invest in a new facility for Strauser Nature’s Helpers in East Stroudsburg, Pa.

The timing wasn’t all bad. “We started to have opportunities to buy land and invest in the business at a cheaper price,” he says.

Fortunately, Strauser had saved when times were good and had the reserves to make some moves. “Before, we were so busy getting work done, we didn’t have time to spend money, really,” he says. From the time he started the business in 1998 until 2008, “It was pretty much, the sky is the limit,” and the business grew 20 to 30 percent each year. Strauser played his spending smart during that time.

Even so, to sustain operations and take advantage of market opportunities, he relied on his own cash to fund growth during the recession. “At least it’s equity in property – it’s not like I lost that money,” he says, adding that building up that savings again will take time. But at least the business is healthy.

Meanwhile, the last five years has afforded Strauser an opportunity to really take a closer look at operations.

“The recession really allowed me to grow up a little,” says Strauser, 36. I started the business when I was in my 20s, and I was full bore until I was 30.” Slower times gave Strauser breathing room to stop, plan and build a strategy for what’s next at his firm. And, like most companies, he got just uncomfortable enough to learn why running lean is critical. In 2001, he launched a Working Smarter Challenge. “We started to basically look at how we do things from an operational and financial standpoint,” he says.

Finally this year, the company has a backlog. “We are starting to put a high focus on construction and installation services,” Strauser says of the primarily maintenance and snow business. Currently, recurring service work is 75 percent. Five years ago, 75 percent of the business was installation.

Meanwhile, revenues are finally reaching pre-recession levels, Strauser says. He expects to match the company’s 2007 numbers, which were its highest. The company has been growing an average of 10 to 15 percent. “We haven’t had one flat year,” Strauser says. But that growth has come from maintenance, which yields smaller profit margins and lower-dollar sales. “That was good for cash infusion and more steady growth each month, which I’m all for,” he says.

Strauser says 2013 is the year his business began moving forward again.

“If the recession would have happened during our first five years of business, we would not be here, I think,” he says. “My drive and money saving got us through everything. So, now we are trying to replicate that (work ethic) but be smarter than we were in our first decade of business.”

Insulated, but proactively diversifying

BP was a big-spender with Foret Contracting Group in Thibodaux, La., following the oil spill in 2010. Foret Group already had BP as a client. But that year, revenues swelled to $7 million. (Today, it does about $3.5 million.)

“We did anything and everything for those folks – we wanted to help our client get through that situation,” says Ryan Foret, COO and landscape division manager at the firm.

The recession really caused no tug on the business. “We feel like we were a little bit insulated from the recession because the predominant business in southern Louisiana is oil field related,” Foret says.

But Foret Group has carefully watched and learned from the last five years of economic strife throughout the country. The firm is focused on diversifying its operation and growing its capability to serve as a total facility manager. “We want to be the one-stop shop for clients,” Foret says of the group’s general contracting and facility maintenance division.

Currently, the company is working with corporate clients who contract out an array of services, from plumbing and electric to landscaping – whatever happens on the property. Foret Group sees an opportunity to serve as a reputable single point of contact. Essentially, the firm is working as a general contractor of trades, which means building relationships to fulfill large, complex facilities management contracts.

The division is doing well, Foret says. “The few clients that we are doing this work for keep us very busy, and this is definitely a service we will put some time and effort in the future to grow,” he says.

Promoting growth, winning talent

“We made the bet that things would turn around,” says Chris Clifton of his approach to business the last five years. In 2009, Southview Design in Minneapolis did $4.7 million. “We are on track to do $12 million this year.”

The landscape market in his region shrank by at least half, he says. And Southview Design did slow down, but not exponentially. During that time, the firm backed away from the homebuilder business and began to focus on consumer-direct services: residential design/build, which is 95 percent of what it does now.

Clifton made sure that homeowners recognized Southview’s name. He credits his company’s growth to assertive promotion efforts – a combination of radio, TV, newspaper, magazine and direct mail – along with creating a sought-after company culture. “We are absolutely leaner now,” he adds.

A different approach to assigning roles in the organization has drawn in talent. Rather than hiring a landscape designer who also sells, manages projects and serves as a project foreman, these roles are broken down into separate jobs. “That way, people can focus on the parts of the chain they are good at, so our average competency level for any given function in the business has gone up,” he says. “It’s the best team with the best players.”

Clifton says this concept isn’t special. But apparently, it isn’t the norm among landscapers in his area, either.

Meanwhile, business is steadily growing as consumers in the Twin Cities market loosen up spending. Clifton says 2011 and 2012 were the best years on record for Southview Designs. “I think we were a little bit on the front end of the recovery because of all the promotion we have done,” he says. “When people came back into the market (to spend), they were willing to take a look at us.

“I also think there was pent-up demand,” he continues. “For some clients, the money was always there, and I think they would have done these projects sooner.”

A brand new approach drives growth

“This might not be the story you were expecting to hear,” says Jim Campanella of Lawn Dawg, Nashua, N.H. His business doubled since 2009, from $5.6 to $12 million. “We got hit just as hard here as everywhere else in the country,” he adds. So, the market in upstate New York wasn’t especially kind.

But lawn care is a service that makes the cut in tough times. Vacations got trimmed and so did large design-build projects. “But you’ve got to keep the grass alive to protect your property investment,” he says.

At Lawn Dawg, growth was propelled by a brave new brand, a handful of acquisitions and aggressive marketing. In 2009, Campanella recruited a private equity group to recapitalize the business so he could buy out his partner. He brought in a full-time property manager, then centralized sales and processing. “We launched a new and improved Lawn Dawg and that has really paid off for us,” he says.

The look and feel of the firm got a makeover. “If we wanted to get taken seriously on a regional and maybe a national basis, which is my goal, we needed a more professional image,” Campanella says.

Meanwhile, Lawn Dawg captured opportunity to expand into new markets through organic growth and acquiring operations. Its footprint has increased from five to 10 branches in the last four years. “There were some really nice strategic opportunities out there,” Campanella says.

This assertive growth will continue. And so will the firm’s careful watch over the budget. “We negotiate everything from print material to trucks and equipment,” Campanella says of a significant change in purchasing since the economic downturn. “We make sure we are getting the best value across the board.”

Born in the recession

Joshua Cauffman launched GreenRoots Landscaping in the Philadelphia area in 2009. Tough is what he knows – business has never been all that different. But what has changed since his first year operating is the size of the design/build projects his company performs.

The $100,000-plus jobs that used to come in the door look more like $25,000 now. GreenRoots Landscaping’s volume has been steady, but billing has decreased.

Still, Cauffman is investing in his team. This year, three additional staff members bring the roster of this $2 million company up to 15 people. Cauffman is positioning the firm for growth by bringing on professionals to manage administrative functions. Now, he’s got an office staff. And that is stressful, in a way, because sales volume is not ramping up significantly. But Cauffman sees potential. “This year, it looks like we’ll be a little better than last year – not hundreds of thousands better, but a little better,” he says.

One struggle he’s facing is bidding against design/build firms that dole out free designs to win jobs. Cauffman subcontracts his design work. He is hiring freelancers that he has to pay, so freebie designs just aren’t possible if he plans to make a profit (and he does). “I have to figure out how to get a professional design to clients without it costing me an arm and a leg,” he says.

And Cauffman would also like to edge away from residential clients and take on more commercial work. For now, up to 70 percent of his clients are homeowners. “I’m telling you, they take 10 quotes on you and … it’s really tough.” Cauffman says GreenRoots is on track internally to support commercial clientele; it’s just a matter of pursuing the work.

His friends in other trades like HVAC, for example, haven’t experienced the same economic stress. If people have a limited budget, necessities come first, Cauffman says. “They’re going to fix their heaters.”

Stepping outside the multi-family niche

The rental market in Florida is booming. Buildings are full. Real Estate Investment Trusts (REIT) buy up foreclosed properties to hold and/or lease need landscaping services, too. Today, Ameriscape Services in the Tampa Bay area is servicing about 500 homes per week for REITs. Last year, the firm did no business in this sector.

Diversity has been crucial for Ameriscape because its core business – the multi-family world – was bombarded with competition since the market was so ripe. “It’s very cutthroat. I’ll tell you, that market is a blood bath now,” says Joe Chiellini, president. “No one can buy a house, so they have to rent,” he continues. “From a business standpoint, the competition for multi-family contracts has been tough.”

So Ameriscape has diversified heavily. There’s no loyalty in the multi-family market, he says, even if Chiellini gave them a price break during the recession. When a lower priced bid lands on the desk of a property owner, guess who wins?

But Ameriscape held on strong during the last five years. And in the last year, the company has staged a strategic growth spurt thanks to new REIT business. The opportunity in this market is huge in Florida and other states that were hit hard by foreclosures, including Arizona and California. The largest REIT in Chiellini’s market has 3,000 properties in the Tampa Bay area. “They are writing leases on these houses just like they are apartment complexes,” he says.

Because Chiellini has worked in the multi-family market for so long, he has relationships with property managers, some of whom moved over to work at REITs. “They reached out to us, and we saw a niche,” he says.

Now, REITs are about 30 percent of Ameriscape’s business. The company is going to do at least a half-million dollars this year from these clients. Meanwhile, Ameriscape also expanded into municipal work, capturing a significant contract with the City of Tampa.

“Before, we never diversified, and I’ve been in business for 13 years,” Chiellini says. “Halfway through last year, we realized that we better start diversifying, so we aggressively went after office park and municipal work, and now we have something in every arena, so that’s a good place for us now.” As for 2014, Chiellini says he’ll “put on the brakes” and harness the fast 30-35 percent growth the company is experiencing this year “We are getting back to what has helped us stay in business, and that’s getting rid of ‘bad business’ and continuing to find good business,” he says.

Steady but stuck

After idling at the same revenue mark for five-plus years, Dave Rykbost says he’s ready to hit a higher target. He’d like to grow Dave’s Landscape Management Co. by $1 million in the next few years. That’s about 13 percent growth each year for the Hudson, Mass.-based business. “I’m kind of sick of $2.5 million,” he says.

But playing a conservative hand has been crucial in maintaining the business since 2008. For example, Rykbost has been repairing equipment rather than making purchases. Not until recently has he added to his mower fleet. Last year, he replaced six mowers, and he ordered a couple more this season (all propane). And, he’s shopping for trucks again. This comes after a few years of steady-as-she-goes.

About a week before the market crashed in October 2008, Rykbost sealed the deal on a business purchase. He bought 200 maintenance customers from an area contractor, picked up four of its employees and spent about $250,000 on new equipment.

Then the phone stopped ringing.

That was OK in fall 2008 because of backlog, and 2009 was strong because of a few anomalies: a big snow season, that business purchase (which added recurring revenue accounts), plus a big installation job that continued from the prior year and kept Dave’s busy through fall 2009.

But in 2010 and 2011, the business felt the recessionary squeeze. The firm was about break-even and sales were down slightly. “We were afraid to raise our prices,” Rykbost says.

Meanwhile, the company did not get its H-2B labor back. Rykbost had to pull from the domestic labor pool, which was growing thanks to rising unemployment. “But it would have been nice to have the guys we had for the last several years who knew what they were doing,” he says.

Over the past few years, profit margins have eroded. This year, Rykbost made price adjustments (with no resistance from clients). “I’ve been blessed with some prudence and I didn’t spend it all when I had it,” he says of sustaining the business over the years. Now, he has money in reserves he can invest in the company. “I guess I have just been reluctant to buy a whole lot of equipment through the recession,” he says.

The economy still isn’t great, Rykbost says. Though, it has picked up from last year. He’s bidding on larger jobs and more of them. “But it’s still a competitive market and you have to keep your numbers very tight,” he says. “And, it’s definitely not 2007 or 2008.”