Episode 1
All Things Hydronic


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Announcer: This is TLC, the Taco Learning Channel.

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Tim Smith: Welcome to the pilot episode of the Taco FloPro hydronics roundtable. The purpose of these roundtable discussions will be to explore all things hydronics, from heating and cooling systems to controls, to products, to applications, even into the contracting business itself. John Barba, why don't you introduce today's panel of experts and help us to learn a little bit about each of them?

John Barba: OK, great. Thanks, Tim. Hi, group. How are you doing?

Rocky Pavey: Hey, John.

Bob Dudley: How are you doing?

John: Good.

Rocky: Good.

John: We've got a terrific group of guys here with us today. We'll start west and move east, how's that? Starting west, since it's earliest out there, Rocky Pavey from Rocky's Heating Service in balmy Fairbanks, Alaska. How are you doing there, Rocky?

Rocky: I'm doing great. Warm regards from chilly Fairbanks, Alaska this morning.

John: What do you have for a temperature up there today?

Rocky: About 27 below.

John: 27 below zero?

Rocky: Yes, that would be below zero, yes.

John: And that would be Fahrenheit?

Rocky: That would be Fahrenheit. We're not talking Calvin yet, so we're OK.

John: [laughs] That would be very cold.

Rocky: That would be very cold, indeed.

John: Yeah. Let's move east a little bit to Salt Lake City, Utah and Robert Dudley of Harris Dudley Plumbing and Heating, also known as Bob Dudley. How are you doing today, Bob?

Bob Dudley: Great. How are you doing, John?

John: Awesome.

Bob: We're a little warmer out here in Salt Lake. We're above freezing and I think we're probably about 28 degrees. So, we're about, what, is that 50 degrees higher than Rocky?

Rocky: 56.

John: Oh boy.

[laughter]

Rocky: Or something like that.

John: [laughs] And you've got a busy day planned. Not only do you have a podcast going on, you have skiing lessons today and you've got a couch coming and all kinds of fun stuff. So it's a busy day in the Dudley household.

Bob: It is. I might have to drop out here at some point. But I'm happy to be here and hope I can flap my gums a little.

John: There you go. And I know you're good at it, too. [laughs]

Bob: Exactly.

John: Moving east, in Minnesota, we have Jim Hilpipre, who's still having some connectivity issues. So we'll go to Easton, Pennsylvania, beautiful Easton, Pennsylvania and we'll talk to Jeffrey Young of Climatech Advanced Comfort Solutions in Easton. How are you doing, Jeffrey?

Jeff Young: Pretty good, JB. You guys are going to be jealous.

John: Why?

Jeff: It's about 45 degrees here, so it's like a spring day.

John: Oh my gosh.

Jeff: Sorry, Rocky.

Rocky: That's alright, Jeff. Like a knife to the heart, baby.

Jeff: [laughs]

John: Like a knife to the heart. We'll go west a little bit. Jim Hilpipre from Hilpipre Heating and Air Conditioning in Fairbow, Minnesota. How are you doing there, Jim? Jim keeps bopping in and out here. We'll get back to Jim in a few minutes. Let's start out west again. Rocky, could you tell us a little about yourself, about your company, and how you got started in this business?

Rocky: Sure. Actually, I used to be a beer delivery guy, and why I would want to get out of that business, I really don't know. But one of the guys I worked with...

John: It depends on what you're delivering, I guess.

Rocky: Exactly. One of the guys I used to work with, his father-in-law was a furnace man here in Fairbanks and we were talking one day about how we'd like to find a way to make a little bit of extra money on the side and he said, "My father-in-law keeps asking me to come work with him. And I don't want no part of that."

He gave me his phone number. I called this gentleman, introduced myself, told him how I heard of him. I said, "I understand you can use a little help every now and then." He literally said, "Yep. Can you be here in 15 minutes?"

That was the start of my furnace repair business 16 years ago, and from there we've progressed. I started my own business about 13 to 14 years ago. Probably a typical story, like most folks, I started with me and my wife and one pick-up truck out of our house and progressed. Today we have nine technicians, three office staff.

We specialize in hydronic design, installation, troubleshooting, and all things hydronic, especially radiant systems. We do very little forced air furnaces. Here in Fairbanks, Alaska, probably 95% of all heating systems are hydronic heat, which is a unique market. We are probably 98% oil. Natural gas is starting to make a little bit of inroads here. They're trucking it in out of Anchorage, if you can believe that. But, I'm just excited about the opportunity to be here this morning and to talk about some of the stuff that we all love to do.

John: Cool, terrific. Bob, tell us a little bit about Harris Dudley. You've got quite an interesting story to tell from your website.

Bob: I guess I'm the other part, the other classic story. I grew up in a family business that was started in 1931 by my great-grandfather, John Dudley. An appropriate name for a plumber, "John," don't you think, John Barba?

John: I think so. I haven't heard that one before. [laughs]

Bob: We've got a company full of Johns. My partner is my brother, John Michael Dudley. So, we've always been in the boiler business, you know, grew up in it. We really started hitting radiant floor heating hard in the mid '90s and have just followed that wave of success. We currently have, I don't know, somewhere around 40 employees in Utah and Idaho. I really enjoy the challenge, not only of the heating side of the company, but also the business side.

John: You have a business degree from the University of Utah, correct?

Bob: I do. I have a degree in marketing. I have a degree in marketing and then I'm also a licensed journeyman plumber, licensed fire sprinkler installer, so I try to get my education on both sides.

John: You and brother work together. One of the many reasons I respect you, Bob, is that you work well with your brother. It's something I couldn't do with my family business. How does that work out? Without getting into too much detail, you two seem to have a pretty good working relationship.

Bob: Yeah. It works out well because we like to do different stuff and we can always fall back on each other for advice, support, everything like that. Our offices actually connect, so we always have open communication and I get along great with him. In fact, my kids and his kids are taking skiing lessons together later today.

John: Cool. Are you going to be on the snowboard?

Bob: No, no snowboard today. We'll stick to the skis. But, I'm probably going to take a snowboard lesson here soon.

John: Cool. Very good. Let's go to eastern Pennsylvania, checking in with—I feel like Larry King—checking in with Jeffrey Young, a.k.a. "Heat Boy" of Climatech Advanced Comfort Solutions. Tell us your story, Jeffrey.

Jeff: Actually, it's Advanced Heating Technologies, JB.

John: Advanced Heating Technologies. Well, you know what? I have to update my stuff.

Jeff: That's alright. You're probably thinking of the other guy up there.

John: Must be.

Jeff: My story is: I got into this business completely by accident. Back in '76, I had been out of high school a little while and I was going down the wrong side of the tracks for a while, let's put it that way. My dad was a salesman for an HVAC oil company in our area, so he kind of drug me kicking and screaming into the office and I was hired as an apprentice, as a technician apprentice. That was in 1976 and I spent a lot of years learning.

In 1992, I started Climatech, strictly to do radiant. I saw the curve was starting to accelerate and I wanted to get in early. That's pretty much how I got here. I guess I'm the small guy among us. Right now I'm just self-employed. I'm in a transition basically from new construction to service and upgrades. I see potential for my business to grow in that area. I have no love for new construction any longer. That's where we are right now.

John: How did your disillusion with new construction develop?

Jeff: Five or seven years ago, things were really good here. The money was good, money was cheap, people were doing a lot of really high-end construction and heating systems. Then, over time, things started to dry up a little bit. Of late, there's hardly any quality stuff that I see going on.

I made the decision a couple years ago to start making more of a transition from contracting to service. Two reasons: Because there's a lot of stuff being put in now that isn't exactly installed correctly, and we're getting to the end of the life cycle of the stuff that was put in back in the late '80s and early '90s, when I started, so there's potential there.

John: Sounds like you've learned to hit the curve ball, so to speak.

Jeff: Mostly. [laughs]

John: OK. We have Jim Hilpipre. Are you there, Jim?

Jim Hilpipre: Yes, sir.

John: Jim Hilpipre, Hilpipre Heating and Air Conditioning, Faribault, Minnesota. Just down the road a spell from Prior Lake, Minnesota, which is a good place to be, I guess. How are you doing today, Jim?

Jim: I'm doing well.

John: As with all the other guys, tell us a little bit about your company, what you guys do, how many folks you have working for you, and how you got started in this crazy business?

Jim: 13 years ago I was a service technician for Forest Air Company. One hot summer day, I was out on call and the owner of the business, he was up at his cabin enjoying life. Here I am doing all these after-hours service calls. He's charging 36 bucks an hour, and he's paying me $11.50. I'm like, "This is it. I'm going to make the big bucks."

John: [laughs]

Jim: Like Michael Gerber and Bob Harris said, I was a service technician with an entrepreneurial seizure.

John: Ooh. [laughs]

Jim: I just said, "I'm going to take the 300 bucks in my pocket and we're going to go out and jump into it."

First service call: 36 bucks an hour, because that's what the other guys were charging. So, we went out and did that one. Only had to wait about six weeks for the 36 bucks. Then we decided that we might as well start doing new construction, because that was pretty easy to do back then.

We put a plan in, did a couple forced air jobs, ran into a job where they wanted us to do all their hot water heating stuff—put all that plastic pipe down before they pour the concrete. I hired my brother-in-law. He says, "Yeah, we can do that. I've been doing this for five years." I'm like, "OK." We were Lennox dealers, so we decided that they got this complete heat thing and it comes with this diagram. We're only heating about, I don't know, 3,000 square feet, but on the diagram it says you can run 3/4" copper out of the heat exchanger. So I got a bunch of 3/4" copper and some fittings and sweat her in. Anybody can do this. That was only like $4,000 lower than the other guy, so I figured I could keep busy doing that.

As things progressed, I ended up getting a little more educated on this whole deal, and now we're into very high-end. We're still doing a lot of new construction, but I really like replacement work. We do a lot of geothermal installs, snow and ice melting here and there. I really like the hydronic part. Forced air is really a tough business to be in, but our homes have a lot of forced air as well as hydronics, so it's nice that we can go in and do the whole project. It's really a great business. I really enjoy it.

But, like everybody else, it's competitive. You have to be better than the other guy and you have to explain to the end users why you're better than the other guys.

I guess we're a pretty small company. We only have eight employees now—we're down a couple. Our sales were way down last year, but I think this year coming up is going to be a lot better. I guess that's where we're at.

John: It's nice that we have a pretty wide cross-section of folks—everybody from the small shop in Pennsylvania to the medium shops in Minnesota and up in the frozen, white north in Alaska. Then we've got the mega-shop in Salt Lake. We've got a nice cross section of experiences. Pretty much, we all started out somewhat similarly, either in a family business or we knew somebody who knew somebody.

The first topic I want to throw out—this actually comes from Jeff, who posted on Dan Holahan's "The Wall" on HeatingHelp.com just yesterday. It sparked an interesting conversation and I thought it might be an interesting conversation for us to have here.

Jeff wrote: "Has anyone else noticed that it's more difficult now to be in business than it was ten years ago? It just feels like the pressures are much greater now, with spiraling insurance costs of all kinds, energy prices going insane, and the tail wagging the dog when it comes to pricing. 2007 was a tough year. 2008, I guess we'll wait and see."

Jeff, I'll throw this to you first. Can you elaborate on your concern? What were you trying to say? In what way are these challenges showing themselves to you?

Jeff: I think with the economy slowing up, it just makes everything more noticeable. When times are good and you're really making money and running and people are spending money, the overhead, even if it starts to increase, it just seems you can handle it. You don't notice it that much.

But when things start to tighten up, then you realize you've got a lot of money leaving the business to pay for things like $3.50, or whatever it is for a gallon of gasoline. I don't know if it's more competitive, I just know there's a lot more guys out here than there were ten years ago. To me, it seems like it's very hard to do what I was doing ten years ago and make money.

John: So the fixed costs seem to be the things that are getting crazy in the business?

Jeff: Yeah. Every one of us has the same issues: health insurance, liability insurance, vehicle insurance. Nothing goes down. I know everybody says you keep passing it on, but how much can you pass on before it starts to have an effect on things?

John: Rocky, you had some input on "The Wall," as well. How do you see things up in Alaska and how do you deal with it?

Rocky: A lot of the same concerns that Jeff had. I just got my worker's comp audit about a week and a half ago and I'm glad we had the defibrillator machine here on the wall because...

[laughter]

Rocky: ...You open it and you've already paid "X" amount of money over the year and then you get the audit and you find out that you've underpaid by another ten grand. There goes another check for ten grand. It was 40,000 dollars just for worker's comp, and I'm a relatively small company.

Like Jeff said, you throw in the cost of employee health insurance, which you have to have and we're happy to provide, but nothing ever gets cheaper—the gasoline for the vans, the insurance on the shop. We're in a unique market up here, to be honest. And I'm very blessed to be here because, from what I understand from talking with other contractors from across the country, a lot of times they're in a much more competitive environment than I am, with more people to do the work, so you're dealing with people who can undercut you to a greater extent than up here.

We're in a very limited market in that there are very few guys doing the work here in Fairbanks. So, honestly, a lot of the concerns some of these guys have about competition undercutting you and things like that, we really don't see here in Fairbanks. I don't, all of a sudden, want you guys moving to Fairbanks, Alaska, trust me.

John: [laughs]

Rocky: I mean, we're kind of in a unique position where we can basically, name our price. There are a few guys in town that are well known for having good techniques and good installation-type quality work, and we're fortunate to be in that same group of guys. We basically name our price and then the work speaks for itself. If you're going to charge, you need to back it up. You need to walk the walk, so to speak.

As far as the fixed costs go, we're in the same boat that everybody else is. Our insurance is through the roof and we, essentially, pay a cold tax up here, because our energy consumption is so much higher than it is in many other places. You get hammered with energy costs that are just astronomical—heating oil, gasoline. Even though we have a main artery tap from Prudo Bay running 13 miles south of town here, we still don't get any break on our heating oil or gasoline prices.

To address that, we charge what we have to charge, and if that means that we lose some customers, then that means we lose some customers. We find that, eventually, they come back around.

John: I think that as far as the rest of us moving up to Fairbanks, that 27 below this morning might be a pretty good roadblock.

Rocky: [laughs] That does present somewhat of a barrier to entry. That's like our Great Wall, right? That keeps the invading hoards out, to be honest.

John: Jim, what are you seeing down in Faribault? The same kinds of concerns?

Jim: Exactly the same concerns. Everything goes up and I'm semi-battling a slower area of business than we've always been accustomed to, because new construction has been so easy for so long, anybody could do it. Now you have to pay extreme attention to your costs of doing business—all these escalating factors, like Jeffrey and Rocky are talking about. But you have no other option than to pass that along. That has to be your sales price. You can't give work away, otherwise we don't need to be doing this business any longer.

Unfortunately, our industry is well known for cut-throat, undercharging, and not knowing what the cost of business is. I think this is actually a good thing, if you think about it, because this will wean out these guys that don't understand what it's costing them to operate. They cannot hang on. Unfortunately, there's going to be another guy to replace that guy. But the longevity of your business, I think, is going to go a long way, plus your presentation to the end user, what you're going to do for them.

You've got to get better at sales processes to overcome that price objection. It's just my opinion. But, yeah, we're feeling it here, but it's just business issues everybody has to deal with, whether you're HVAC or plumbing, heating, electrical, or whatever. We've all got the same issues. I think we just have to get better behind the scenes and move forward.

John: What kinds of things are you guys doing to help control your costs of doing business? Rocky, you mentioned the worker's comp audit, which is something you have to pay. I would imagine it's state mandated up there, like it is in most places.

Rocky: Right.

John: But other insurance costs or other fixed costs; how do you guys go about trying to control those?

Jeff: I try to increase deductibles to a certain point. You can get carried away. I'm sure if something happens, it's more money out of my pocket, but it helps with the overhead.

John: Right.

Rocky: We've gone to a tighter inventory control here in our shop. It used to be that our guys would buy whatever they wanted whenever they wanted and I found that the inventory was getting out of hand. That's one area of the business that we're actively addressing right now, trying to keep some tighter inventory control on what is purchased and by whom. Even though that's not a direct cost or fixed cost, it is a cost that I can adjust and play with to effect the bottom line elsewhere.

John: How about you, Jim?

Jim: We've done the same thing. We're more adjusting time kind of company. We used to buy huge stock and orders and sit on all this overhead until we used it. But we're really working on field efficiencies. I talked to you guys before we went out to Rhode Island about this press tool thing. Of course I had to buy one.

John: [laughs]

Jim: We analyzed all our systems in the shop and hang them on the wall. I did one the other day with the press tool. I cut about two and a quarter hours out of it, building this thing with this press tool. I got on site...because it's my tool, I've got to use it, you know?

John: Right. [laughs]

Jim: The installation went so fast, I couldn't believe it. That's overcoming overhead expenses. When you get jobs done under budget and in time, that's money that goes right to the bottom line, to overcome those expenses that are growing on us. Those are ways to do it—set some efficiency, getting your guys to work more efficiently, get in under budget to compensate for these increased costs. The flip side is you've got to have inventory. Like Rocky, if he has a boiler go down at 11:00 Friday night, he's not waiting until Monday to put it in. You've got to have the stuff on hand.

Rocky: Right.

Jim: So you've got to find out what you use day after day and make sure you've got that stuff. But you probably don't need 2,000 press elbows on hand. That's what we're doing.

John: How are your customer reacting to this? I guess that's the $64,000 question. Everybody's prices are going up. Obviously, we've got to pass this stuff on to the customer. What's their reaction?

Jeff: A few raised eyebrows.

John: The same defibrillator thing you have, Rocky, or what?

Rocky: [laughs] I've got a portable one I carry in my van when I drop off my proposals, yes.

[laughter]

Rocky: Actually, I find that if you sit down and explain to the customers...I've had customers actually show me my bid. They're getting multiple bids. I'll show them my bid and they'll pull out the other bids after I end up winning the job. Even though I'm more expensive, my bid is much more detailed. I actually explain what I'm going to do, why I'm going to do it, what it means to them. The other guys are giving them a bid that says, "Here's the materials, here's the labor. We can start Monday."

I find that if you take a little bit of time and, even though it's a harder market to sell in because energy costs are squeezing all those excess dollars out of the economy and homeowners are feeling the pinch, I think now is the time where professionalism can actually win the day.

If you go in there and show them you know what you're talking about, that you're not some hack-master who just gives them a number, that you're explaining your system - why it works, why it's going to work for them—I find that the price objection, in a good economy or a bad economy—goes by the wayside, as long as you are able to present your product and actually sell it, as opposed to just giving them a bid and walking out the door. If you actually sell it, I don't find the price objection to be all that great.

Jim: What Rocky is doing there is selling himself, he's not selling a product. That's really what he's doing. That's how you become successful, because everybody's got a Buderus boiler or everybody's got this or that, but Rocky is selling himself and that's really what we need to do.

Jeff: You have to gain the customer's trust. You can either sell by price or you can sell by forming a relationship, you know what I mean by relationship. You have to get their trust if they're going to hand you money. It's that simple.

Jim: Yeah.

John: That means looking the part, acting the part, everything, I would imagine.

Jeff: It all goes to being a professional. You spend the time. You have to ask questions. You have to find out what it is they want. What's going on with their current equipment? Is there anything that can be changed or improved upon? But it all comes down to trust. If they're going to trust you with thousands and thousands of dollars, it's up to me to make them trust me.

John: And to be trustworthy. What you guys are all talking about is "selling 101," which is, as you all know, a topic near and dear to my heart, which I'm sure we'll get into in future podcasts.

What do you guys see for 2008? More of the same? Hopes? Dreams? Fears? What do you see as the big challenges?

Rocky: Energy costs are going to need to be managed, not only at my company not just our energy costs, but helping the customer manage their energy costs. I see that as the biggest challenge coming up.

I'm excited now that natural gas is making some inroads here in Fairbanks. I know you guys have got it and have had it for a long time, but here, natural gas is fairly new. Like I said, they're actually compressing it and trucking it up out of Anchorage and then injecting it into the gas lines here.

That allows a whole new world of devices and equipment for us to choose from. We get to play with some of these new mod-cons that are coming out and I'm tickled pink. So that is one more tool in my arsenal to allow me to address the energy concerns of these homeowners. The fact that I understand how they work and how they're supposed to be installed and how to work on them, that is a huge technological advantage to me over most of the other guys out there. I see energy concerns being a real high priority for my customers in the coming year and coming years. But I look at that as an opportunity to upgrade their equipment and make some money in the process.

John: Terrific. Jim, how about you?

Jim: The challenges are going to be the same as last year. For our company, we have to get away from relying on the new construction business. We've never really marketed to the replacement market at all. That's something that we're doing this year. Little things, like we haven't done the Heating Professional website, which is a no-brainer.

If you did a search in Minnesota right now, I don't think you'd even find one that would come up. That's a major search engine that's really inexpensive. I think we need to market to a different area of business. That's what we have to do.

I'm pretty excited. Our business is looking very good for 2008, because we've got some very large projects that are just starting now. We saw this last year, too. Our first quarter was bang up and then the second and third quarters just went away. We have to work on getting the second and third quarter going so we're ready for it.

I think more comes down to marketing—changing the way we do business, or what area we're going after That's really what we need to do.

John: Jeff, how about you?

Jeff: I think 2008 is going to be much better than 2007. For me, 2007 was a definite transitional year. What I mean by transitional is going from new construction to more emphasizing service and upgrades and modernization. The overhead thing is going to be here, but I think once I get a handle on that... I'm always adjusting prices. I get the deer in the headlights look all the time when I tell somebody how much something's going to cost, so that's normal operating procedure. But, I'm hopeful for 2008.

John: Great, guys. This has been a great first episode. We got a lot of interesting things on the table and we inadvertently set an agenda for some of the future episodes. We can talk more about Internet marketing. We can talk more about salesmanship. Definitely get into a discussion on high efficiency heating equipment and what one needs to know to get into that business.

With that, I'll say thank you to our panel: Jim Hilpipre of Hilpipre Heating and Air Conditioning in Faribault, Minnesota; Jeffrey Young of Climatech Advanced Heating Technology...

Jeff: Well, thank you. [laughs]

John: ...of Easton, Pennsylvania; and Rocky Pavey of Rocky's Heating Service in Fairbanks, Alaska.

Rocky: My pleasure.

John: Bob Dudley had to go skiing, so he left us fairly early.

[laughter]

John: When the fresh powder calls, it's time to drop the headset and head to the mountains, I think.

Rocky: No doubt.

John: Thank you so much for your time on this Saturday morning from, literally, almost coast to coast or sea to shining sea.

Jeff: Yeah.

John: We do appreciate it and I guess we'll just wrap it up from here. Tim?

Tim: Thank you, John. I, too, would like to thank all of our panelists for taking time to participate in the pilot episode with a take of FloPro Hydronics Roundtable. Our goal is to schedule these roundtable discussions on a routine basis and open the phone lines for questions and answers and comments from others interested in the area of hydronics.

If you have any questions or comments, please email me at tlc.flopro@taco-hvac.com. And again, thank you for participating and listening.

Announcer: This has been a presentation of Taco, Incorporated.