Your Business: Finding New Markets in a Tough Economy
Holding steady in a shaky economy is like a game of chess: Business owners must anticipate its movements, create strategies to best respond to threats, and protect the king-the company’s bottom line.
For many businesses in the erosion control sector, being diversified has enabled them to stay in the game without losing too much ground.
“The key is that when things get slow, you’ve got to be prepared to maneuver,” says Tom Mackey, owner of Northwest Tree and Reclamation in Bonners Ferry, ID.
Aggressively pursuing work is another strategy that companies must adopt in these times, points out Robert Arello, president of Hydrograss Technologies of Florida and Massachusetts.
“The key is to work hard to hunt projects,” he says. “You’ve got to turn over every stone because you’re not getting the calls you used to get, and you have to work two times as hard to get a third of the work.
“We don’t wait for anything to come to us, because that doesn’t happen. We hunt everything in sight,” he adds. “We keep looking online for projects. We do a lot of preliminary work-phone calls-and mailings. We look for projected projects, speculative projects down the road. Anything that has a little bait on it, we’ll grab it.”
Those faring the best are companies that have diversified products and services. The weakening of the residential construction sector has prompted these companies to shift gears to work in other sectors, such as commercial or municipal construction and roadwork.
Erosion control companies also are using their equipment and labor in new ways, such as using hydroseeding machines to spray water or chemical suppressants for dust control, path stabilization, or fire suppression. The work generates income for machines that would have otherwise sat idle.
When there is not much new building going on, the emphasis switches to repair and maintenance-another business opportunity. Numbers show commercial building has taken up some of the slack left by residential building. While fewer people are moving into new homes (and some areas of the country are built out anyway), more people are rehabilitating the ones they have, meaning construction equipment is still in use.
Hydrograss Technologies has found another opportunity by doing a number of jobs in providing erosion control at inactive construction sites to help developers and builders comply with environmental laws.
Certainly, keeping an eye on economic trends helps erosion control companies stay ahead of the game.
Finding Resources Online
One way of monitoring regional economies is the Federal Reserve’s Beige Book. It’s accessible online at http://www.federalreserve.gov/fomc/beigebook/2008 and offers information on current economic conditions in each Federal Reserve district. It can be helpful in determining which market segments are worth pursuing.
The US Department of Commerce Census Bureau posts economic indicators that serve as guideposts for the nation’s economy. These can be found at http://www.census.gov/cgi-bin/briefroom/BriefRm. The indicators of interest to the erosion control industry are new residential construction and construction-put-in-place spending. The latter encompasses a wide variety of public and private projects.
Residential construction is tracked through building permits, housing starts, and housing completions. At the end of summer 2007, residential construction permits were down 32% over the previous year, housing starts down nearly 30%, and housing completions down 31%.
The landscape is different, however, for the construction-put-in-place category. Although there has been a decrease in the construction of commercial, religious, and communication facilities, there has been a significant increase in construction activity in other market segments.
They are, in descending order, manufacturing; lodging; public safety (detention, police/sheriff, and fire/rescue facilities); power; offices; transportation (airports, land-based passenger terminals and mass transit facilities, and docks and marinas); health care (hospitals, medical buildings, and special care facilities); and amusement and recreation (sports venues, convention centers, neighborhood centers, parks, and camps).
Additional markets experiencing construction growth increases include water supply (plants, lines, and pump stations); educational (primary, secondary, and higher education buildings and libraries); conservation and development (dams, levees, breakwaters, and jetties); sewage and waste disposal; and highways and streets (paving, lighting, bridges, and rest facilities).
In fact, bridge restoration will be a primary concern in upcoming years, providing opportunities for erosion control with respect to earthwork done onsite. According to the American Association of State and Highway Transportation Officials, the cost to repair or modernize the country’s bridges is $140 billion, assuming all bridges are fixed immediately. The average bridge in the US is 43 years old.
In working with the public sector, those companies that are Disadvantaged Business Enterprises (including minority- and women-owned companies) will find plenty of assistance on state department of transportation Web sites.
State transportation departments have a number of road projects planned or in progress. Maryland’s department of transportation procures nearly $2 billion in goods and services every year. Arizona is posting several jobs in road and rest area work. Florida is posting a number of road landscape design projects. Michigan’s department of transportation has planned many “significant” road projects for 2009. North Carolina has posted a design/build bridge project calling for erosion control. Texas has several landscape projects in the planning stages. Colorado, Utah, and Vermont also are listing a number of projects.
Every state transportation department has a Web site; the United States Department of Transportation offers a list of state-based transportation departments at http://ntl.bts.gov/faq/statedot.html.
Each state’s Web site varies in the volume of information it offers. Many of the sites offer helpful and detailed information on how to conduct business with that particular state.
Illinois, for example, has extensive links on its site to assist contractors with various parts of the bidding process. Kansas offers a monthly fuel adjustment price index to help factor those costs. Massachusetts has a national award-winning project development and design guide for developing better road and bridge projects.
New Hampshire helps contractors by providing information on the National Pollutant Discharge Elimination System (NPDES). South Dakota provides information addressing stormwater, and its Web site features an erosion control data sheet.
Those who monitor work in the construction sector may use the Dodge Reports as a tool (http://www.dodge.construction.com).
The Bidding Process
The government bid process-beginning with a request for proposal-can be daunting for those who’ve never tried it.
These days, Internet bidding is very common. States often prequalify contractors; erosion control specialists should check with the transportation department in each sate in which the company operates to determine prequalification factors.
In qualifying, be prepared to provide proof of such factors as a detailed financial statement that outlines current and fixed assets, liability, and net worth. Companies also might need to show compliance with Workers Compensation laws. The bid process may also include license and bonding requirements.
In public sector bidding, notes David Gilpin, president of Pacific Coast Seed in Livermore, CA, there are contractors who have not had previous experience in that market sector who are outbidding others.
“Hopefully, the people who do it will venture in conservatively, engage public work at a bootstrap kind of level getting experience at it as they work,” he says. “It is a different way of getting work in terms of regulation, productivity, and wages, and they need insurance and bonding.”
Todd Smith, division manager for landscape and erosion control for American Civil Constructors (ACC) in Lakewood, CO, says that the bidding process-especially federal bidding-is “extremely complex.”
“There are a lot of things you have to sign up for, pay for, and register,” he says. “You have to go through background checks and supply upfront information. You have to provide financial and personal information-everything about your company-and they either approve you or they don’t. It’s like qualifying for a home loan.
“Many times, you have to have similar work experience-which goes back to the question, how do you get the job without the experience?”
Nonetheless, many erosion control companies have had success with bid work.
Searle Brothers in Rock Springs, WY, generally provides erosion control for dams, ponds, coal mines, and oil and gas operations, and the company isn’t lacking for work in the least.
Raymond Searle, the company’s president, advises those pursuing bid work to know one’s company’s costs and capabilities. “Don’t get yourself in a bind where you try to underbid on a job and you make it so bad that you’re going to lose money or end up paying for doing the work,” he says.
Government bid jobs have become more diversified and technical, Mackey says. Consequently, bidding for such work requires attention to detail.
“A lot of people get into trouble by having a product that will not be approved,” Mackey says. “You’ve got to be watching that. The government has tightened up the process. The bidding is stringent. You’ve got to have the bonding and financial capabilities to get through those projects. But, at the same time, it’s challenging and fun. I enjoy the business.”
When it comes to Internet bidding, contractors should take some precautions. Oklahoma’s Web site cautions that it has been receiving bids on disks containing viruses; many states are now featuring fraud alerts on their Web sites regarding attempts to steal contractor’s banking information.
Other Arenas
Bidding for government jobs is one tool in the toolbox. But diversification is the best business strategy moving forward, says Gilpin.
“As a seed company, we’re diversified across classic short-term erosion control and then also in areas such as habitat improvement. We do some special collection of seed products for specialty restoration,” he says.
Because private sector development is slow now, Gilpin’s company has been concentrating its efforts in other arenas where it has the experience and where the market is more stable, such as public works infrastructure, commercial construction, habitat improvement, and other types of restoration, as well as rehabilitating areas that have been affected by wildfires.
“We need to work hard at those areas where there is still activity, and that’s where we’re concentrating our efforts,” he says. “We’re maintaining relationships with hard-working customers who work with us to try to identify opportunities so we can all keep moving forward in what is certainly a much different environment than what we had two years ago.
“People who have had a diverse background in experience and clients will find that serves them well in a changing economy,” Gilpin adds. “They’ve built relationships over the years that will carry them on into certain parts of public work and whatever private work might be available. Some work is relationship-driven as well.”
It’s a good idea to focus on opportunities that complement services already provided by an erosion control company, Gilpin points out.
For instance, his company conducted a scientific study for the government focused on trial planting and data collection and wrote a report on it for the Natural Resources Conservation Service.
The company also is growing specialty plants and may soon be growing endangered species for long-term environmental restoration.
“In general, diversified companies are taking the opportunity to expand in areas they’ve worked in, but it may not have been their core business,” says Gilpin.
The green movement is also bringing in a lot of work, he notes.
Going forward, business owners should pay attention to inventory levels and accounts receivable, and should pay promptly on their own accounts to take advantage of discounts, Gilpin says.
“Make sure you’re comfortable with whom you’re working for,” he says. “Make sure they have the resources to pay you when you deliver what you say you’re going to do.”
Companies also can expect to be filing more liens this year than in previous years in order to recoup money, Gilpin notes.
Ultimately, a prime business strategy has always been to “work smart,” says Gilpin. “We’re trying to help people find effective and affordable solutions to their erosion control and other seeding projects,” he says.
Smith says that his company has expanded its geographical service region as well as uses for its equipment in response to a construction downturn in Colorado. He says erosion control specialists, for now, will have to consider going farther and making less, consider other uses for the company equipment, and realize that margins aren’t going to be as large as they once were.
“People who used to do all housing work now need something else to do,” he says. “They’ve decided they will do public and private commercial landscaping, which they really can’t, so they’re bidding it at cost to keep their doors open or they’re bidding it under cost because they don’t know how to bid. For those of us who do know how, we don’t get the work. We’ve got to travel farther to see what we can do.”
In doing so, the company is incurring additional fuel costs, Smith adds.
“Our margins have dipped tremendously,” he says. “We’re hoping that our efficiency, because we’re so good at it, will offset some of the costs.”
ACC has been using its hydromulching equipment as water trucks to spray down the roads for compaction and dust control.
Generally, ACC does a lot of public sector work, including highway jobs. ACC has always focused on diversifying, Smith says.
“We do a lot of road work, grading, some utilities-we also do everything after that to make it look like nobody was there: wetlands, erosion control, commercial landscaping, and big parks and playgrounds,” Smith says.
Smith points out that public sector work is ongoing because many municipalities are in the midst of bonds that were passed by the public a few years ago to fund projects.
Mackey notes that while development has come to a “standstill” in his area, and although government contracts have tapered off as well, his company is still bidding on them.
“We have definitely fared better than most of the areas of the country,” he says. The Sandpoint area attracts higher-end real estate, and although development has been slow, it hasn’t slowed to the pace seen elsewhere.
Even though his company has had to reduce its labor force by 40% over what it has had in the past five years, it maintains a steady pace with its present work force through such jobs as the Idaho Club, a Jack Nicklaus Signature Golf Course.
Diversification is the key to capturing work for Northwest Tree and Reclamation. The company’s primary focus is in environmental restoration and erosion control. The company runs three hydroseeding machines. It also performs wood fuels reduction, a fire prevention-type harvesting, which includes wood chipping and grinding. The latter goes hand-in-hand with helping the erosion control side of business, as the wood chips are utilized for erosion control, says Mackey.
That’s been the focus of the business for Northwest Tree and Reclamation over the past four years.
“Even so, that portion of the business has reduced by about 50%. It’s not uncommon to work twice as hard for half as much,” says Mackey. “But we’ve had enough diversity that we keep going.”
In the past, about 60% of Northwest Tree and Reclamation’s work has been in government contracts, including highway restoration and wetlands mitigation. Another 30% has been in the commercial sector, with 10% in the residential market.
Mackey’s company also is involved in long-term federally funded projects. Such projects ensure a steady stream of income while the economy adjusts, so when the project is finished, his company is prepared to pursue other options that may become available at that time.
Mackey says the company has avoided putting too many eggs in the residential basket, focusing instead on larger jobs for the commercial and government highway markets. “That’s been our biggest bread and butter,” he notes.
The company is using its hydroseeding equipment for other uses. “We’ve done some dust control this season, whereas in the past, we have not,” he says. “It kicks things up a little bit when you can offer people more services for hydroseeding. We also make our own erosion products, like straw wattles, and that’s been helpful for bidding.”
Northwest Tree and Reclamation also has its own tree farm and nursery, and although sales of plant materials have slipped 40% in the past season, it gives the company the capability to use the plants on projects, says Mackey.
Arello says that his company’s work along the eastern US coast between Massachusetts and Florida has been steady, although he’s seen busier times.
“Residential is almost non-existent,” he says. “We’re all commercial in that we need the big jobs to do well.”
Government work also is providing a steady stream of income, such as a project at the Hoover Dike at Lake Okeechobee in Florida. Hydrograss Technologies is working in conjunction with the US Army Corps of Engineers and the main contractor to apply GeoPerm on a slope to strengthen the dike.
Hydrograss Technologies also is tapping into the types of government jobs that are experiencing growth now, such as wastewater treatment facilities and water filtration plants.
“We used to have more residential, but obviously builders like Pulte Homes, Toll Brothers, and Centex Homes are getting hurt with not being able to sell inventory. They’ve downsized dramatically. There’s a lot less for them to build, and that means they’re not disturbing new land,” Arello says.
Hydrograss Technologies is going after different angles, Arello says. “We’re going with a lot of stormwater management. We sell a lot of flocculants and dewatering products,” he says. “We go after any work that entails digging and excavation. They have deep pits and are pumping water out, and we set up devices and systems where they can clean their water.
“We can do dewatering, seeding, and slope stabilization. We’ve got to be more diversified today than we were five years ago.”
Like other companies, Hydrograss Technologies also is using its equipment for dust control. “We’re using polymers, natural organic guar bases, wood fibers, and our own kinds of additives. We don’t buy dust control; we make our own that we know works well,” says Arello.
Government work is good for erosion control specialists-for those who are successful in capturing it and performing it.
“It’s very complex,” says Arello. “It takes a long time. It doesn’t happen overnight. We’ve been working at it for three or four years. We’ve got the system in place, and that’s what you need to do.”
That means introducing new products to government officials and “deviating from the old-school mentality by using something different besides jute netting,” says Arello.
“We’re always looking at being innovative and trying new products if we can find them,” he says. “Something different, besides a bonded fiber matrix. I work with the chemical companies to try different products. We’ve got these mounds at our office where we’ll spray 10 different products, different formulations, to see which ones will hold the best and which ones will germinate under certain conditions the best. We’re trying to explore and improve our product lines.”
Gilpin reminds erosion control contractors that work can be cyclical.
“In the early- to mid-1990s, there was a lull in public works,” he says. “The highway departments were mostly spending their money on seismic retrofitting. That was great if you were a bridge builder, but if you were an erosion control contractor, they only disturbed a little bit on either side of the bridge, and the funds were spent mostly on making the bridges safe. It didn’t provide much business to the erosion control industry.”
At that time, erosion control specialists began looking more toward private sector work to support their businesses.
“In this arena, they’re going to have to look at a combination of things,” Gilpin says. “Some businesses may not be emphasizing erosion control anymore. They may have changed their business models to something else in the current environment. Some contractors were doing other services for developers, such as site cleanup, weed control, and street sweeping.
“It’s going to be pretty quiet this year, but maybe next year we’ll start seeing some more activity.”
Mackey is optimistic.
“I think the future looks very bright,” he says. “The economy has had a big impact on our business, but we’ve just got to make up for it in other areas, such as productivity.
“There is going to be a lot of work in the future. I’m excited for the future of erosion control and all of the products that go with it. We’re going to stay right with it and keep going.”
