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John Barba: Welcome back to the Taco FloPro Panel of Experts Podcast. I'm John Barba, and with me is Heatboy, the one and only Jeffrey Young from Easton, Pennsylvania. How are you doing today, Jeff?
Jeffrey Young: John, how are you? How's the weather up there in Minnesota?
John: It's snowing [laughs] again! Surprise, surprise! We've been in single digits, low double digits, and pretty much non-stop snow all winter. It's been great. How about in Pennsylvania?
Jeffrey: It's in the thirties right now. We've had nothing but ice down here. Every time the weather gets bad, it's just ice. We don't get snow. Now it's supposed to by the end of the week get below zero here, which is very rare. We hardly ever get below zero. It will be a good test for all the stuff I have out there.
John: There you go. Yeah, if it can take below-zero weather in Pennsylvania, you know you've done a good job.
Jeffrey: That's right.
John: Jeff, just to remind our folks a little bit, tell us a little bit about your business, how long you've been in business, where you're at, and all that good stuff.
Jeffrey: I've been in business since 1992. I started out doing mostly contracting radiant floor. That's why I started the business. It's evolved. Actually, right now I'm in the process of trying to change from contracting to service and maintenance because of the way the market is at the moment. Construction has gone away. There's always need for service. That's what I'm trying to take the business towards.
John: As our topic today has to do with recent changes in the economy over the last several months nationwide, if you've watched the news at all, you know the economy is ka-blooey in our country. Credit has dried up. A lot of people are concerned. Unemployment is increasing, and we have some concerns. It's starting to affect people in our own business.
Jeff, you're being a one-man shop. You've had a nice evolution in your business since you started in 1992. Can you tell us, what kind of things are you seeing out there nowadays? What's the climate like in Pennsylvania?
Jeffrey: It's slow. Really, it's painfully slow right now. Nobody's doing anything, only what they have to do. As far as new construction, it's virtually come to a standstill. While I drive around during the day, I'll see these developments that have been started three, four, or five years ago.
Sometimes you'll see a house that's been for sale for a couple of years. You'll see a house that's been started, but they've never finished. I figure they're the guys that went under. I don't do any of the big stuff anymore since I'm by myself now, but I have two builders that do additions all the time.
I haven't even seen these guys for a year. I've done a lot of work for these two guys and nothing for a year. They're not doing anything, either. They've laid off half of their guys.
John: Wow. It's taken its toll in a ripple effect almost, really.
Jeffrey: Yeah. This has been going on here, not to the point it is now, but a couple of years ago I could see it coming when I laid off the guys that I had working for me out of necessity, more or less. I'm trying to change the business model from contracting back to service, which is my background anyway.
John: That was a conscious decision you made starting a few years ago. What were some of the things that prompted you to do that, to change the focus of your business from a contracting standpoint to more of a service and retrofit application?
Jeffrey: A lot of it is because there's so much radiant that goes on now. There are so many what I call tube slingers out there now that are just doing the jobs, and they don't know what they're doing. A couple years ago I started getting calls about things that weren't working right, and could I come out and take a look at them?
Yeah, that was the start of it. That just happened to coincide with the contracting stuff slowing up substantially. It was definitely something that I started to look into. Half my business the last year has been radiant rescue, looking at systems that aren't working that were installed incorrectly. I see a [laughs] revenue stream for the next decade.
John: [laughs] I love the new noun we have now. "Tube slinger." I love that.
Jeffrey: Well, it's true when those guys have been doing it. You were the same way since the early '90's or late '80's. There weren't a whole lot of guys doing it. It seems like the systems that were put in back in those days seemed to be more technically correct than the stuff that I see now.
Between the Internet guys and everybody who thinks they can put radiant in, like I said, it's almost easier to do service work on them than to try to sell them in the first place anymore.
John: Yeah, I think in baseball they call that a closer.
Jeffrey: [laughs] Yeah, exactly.
John: Maybe you come in and rescue in the bottom of the ninth inning or something.
Jeffrey: A lot of times by the time they call, they're so frustrated because it's been an ongoing issue. They can't get the problem rectified. By the time they call, they just want it fixed.
John: Sure. They've already invested a ton of money in it. So you've seen a substantial increase in that over the past several years?
Jeffrey: Yeah, especially the last 18 months or so. Now I'm trying to figure out ways to market that side. I have a portion of my website dedicated to radiant rescues. I'm leaning more towards that. I certainly will not turn away something new if it comes to me. If it's a quality job, I'm not crazy enough [laughs] to turn it away. But it seems like that is harder and harder to find.
John: When you talk to customers nowadays, and if it's not a radiant rescue, say it's a boiler replacement or something along those lines. What are some of the concerns that they're bringing to you?
Jeffrey: For a while it was fuel prices and the age of the equipment that they have. Those were the two primary reasons.
John: Are you seeing more as the economy's gotten a little bizarre over the last few months, are people trying to make what they have last a little bit longer? Or are they more open to doing more of an overhaul?
Jeffrey: Both. At least the upgrades that I've done, if they're going to spend the money they want to spend the money right instead of just patching it up. I don't get everything I look at for sure. There are both there. We just try to keep it running until they decide they want to do something with it. A lot of it is, at least from my aspect, the ones that hire me, hire me to do it with good equipment and good installs.
John: Are you seeing a lot of price shoppers?
Jeffrey: Personally, no. Most of my stuff is all referrals from somebody else or somebody that knows you. I've even got some stuff from other contractors, other HVAC guys. No, my jobs haven't been price-shopped, but I've got some friends around that have said that pretty much happens to them all the time.
John: Which can be really frustrating.
Jeffrey: Especially if they're a current customer. They want you to do the call, so you've already got the foot in the door. But they go out and shop your price. What kind of current customer is that? [laughs]
John: Yeah. With the way the economy is, I guess they're looking at all of their options. How is your business health right now? I've seen on The Wall and in other forums that there are layoffs. Now you're down to a one-man shop, so [laughs] there's nothing left to lay off. But how do you see the overall health of your business at this point?
Jeffrey: It's OK. I think conservatively, it's probably off 30 to 35% from two years ago. The last couple of years I've been off by 30 or 35%, but with the longevity I've been out here for such a long time. You run the business. You don't spend money unless you really have to like [laughs] everybody else. You just try to stay lean.
Eventually, it's like the pendulum of a clock. It's just back and forth. Eventually, it's going to swing back the other way. You've just got to do what you can do until the pendulum starts going back the other way.
It always does. It always has. I've gone through this three times since I've been in business. The recessions were not quite as deep as this one. It's not the first, and it won't be the last that we go through.
John: Sure. When you started in 1992 we were coming out of a recession then, weren't we?
John: Then we had another one. When was it? Starting 2001 or 2002 things were slowing down. You're right. It is a pendulum. It just keeps swinging back and forth. You've got to ride the wave a little bit.
Jeffrey: I don't think it's anything to do with who's in [laughs] office or any of that other stuff. It's just an economic cycle. It doesn't really matter. You either ride the good side, or you just fall off the bad side if you're holding office somewhere.
John: What kind of steps are you taking to stay busy and to stay profitable?
Jeffrey: Staying busy, that's tough. Right now, the last month or so, it's been really lean. The phone has hardly rung at all. Up until that point it was pretty good. You just squirrel some money away. About all I can do is when the phone rings, you go.
John: Sure. Sure. Do you continue to advertise?
Jeffrey: I don't do any advertising per se much. My website is my primary arm, that plus referrals and things like that. I've always thought the Yellow Pages were just a big, black hole that you throw money down for my business anyway. I just don't see the logic in the shotgun approach to advertising.
John: Right. In Easton you have a local newspaper. Maybe something like a radiant rescue [laughs] advertisement or something like that might be helpful.
Jeffrey: We have a little thing called "The Irregular" that runs around town every month. It's a local newspaper. It's just for Easton and the surrounding burbs. I've done some advertising in that. Any advertising is mostly web based, I guess. More and more it would seem to make sense. That's where to put the money.
John: Sure. What kinds of things have you stopped spending money on, let's say? Obviously, with the revenues coming in, you've got to cut back somewhere. What kind of things have you cut back on?
Jeffrey: Unfortunately, I haven't cut back on eating.
John: If you've been in the office all day, what else can you do, right?
Jeffrey: Exactly. I just spend money where I have to, John. I don't go out and spend a lot on stuff. I just buy what I need. There used to be the time when I'd buy a lot of stuff for stock. You'd always get a better buy if you buy 100 instead of 30 of something when money was good and you were busy.
But now, when you go to the supply house, I just buy what I need. I don't spend a lot of money at the supply house even keeping inventory.
John: Sure. Inventory costs because you've got to buy, you've got to store it, and then ultimately you hope you sell it again.
Jeffrey: Yeah, but as slow as things are now, I just don't inventory much at all anymore.
John: In the emergency service stuff, it being in the middle of winter, you would think that there'd be plenty of things breaking down. Even that's drying up a little bit it sounds like.
Jeffrey: You always get the service calls, but the boiler replacements aren't done this time of the year for the most part anyway. Usually if it's a boiler replacement this time of year, you get whatever you can, you get it put in, and you get it back on. You don't really have a chance to make an intelligent decision about what it is you want to buy, as a homeowner that is.
John: That it's an emergency and you need heat, sure. Going back to the fall, before the heating season started and the economy started to tank a little bit, were you finding that customers were calling and inquiring about boiler upgrades?
Jeffrey: Yeah. I did some in the fall. They were mostly for existing accounts that had stuff that needed to be replaced and a couple of referrals. I've done more oil to gas than anything, especially with the high efficiency boilers now.
John: Are people balking at the price of the high efficiency boilers? Or is it something they view as an investment?
Jeffrey: Yes and yes.
Jeffrey: They realize the efficiency costs, but the sticker shock! [laughs] There is a funny story. I did a rehab for a boiler gas conversion for one of my now customers. He owns a bike shop in town here. They sell these really exotic bicycles, 12 or $13,000 for a bicycle.
John: Oh, boy.
Jeffrey: Yeah, yeah. We were talking back and forth. I gave him a price on upgrading. "Get rid of the oil. Go into high efficiency gas." It was certainly not inexpensive. But there again, he should be used to that kind of stuff. The sticker shock, he said, almost gave him a heart attack.
Jeffrey: Now this comes from a guy who sells 12 or $13,000 bicycles.
Jeffrey: It's all relative. It's weird how it all plays out. Eventually, he saw the value of what I was proposing, and there was no problem. He's been a great guy since.
John: And he's been happy with his new boiler, I hope?
Jeffrey: Yeah, yeah.
John: Now Dan Holohan said, last spring I believe it was, that $4-a-gallon fuel oil might just be the best thing that's ever happened to our industry because people are starting to think about that economy-of-operation thing.
Where before, "Yeah, 80 to 82%. I got it. It's good enough. How much am I really going to save?" Now it seems to be a much more tangible savings. If you can knock 15 or 20% off of somebody's fuel bill at $4 a gallon for fuel oil, now you're talking some serious money.
Jeffrey: Oh, yeah. Then the payback is a lot quicker, or there is a payback. A lot of times payback is a fuzzy thing. Depending on what it is, how big it is, and how long you plan on being there, there may not be a payback on a lot of this stuff. You can start to pay off the job. $4 a gallon is great, but I think that hamstrings a lot of the economy more than anything else.
There are a lot of people who can't afford to do a major upgrade on their mechanical systems, so they have to feed the dinosaur they have. They're the people that will get stuck. Sure, $4 a gallon is great for my business, but at the same time I have to buy that $4-a-gallon fuel or whatever.
John: That's right. That's right. In regards to payback, I remember this quite a while ago. I think it was 1989. A customer asked me about the payback on a boiler replacement that we were talking about. I looked at him and I said, "This thing is not a slot machine, OK? It's a boiler. This thing's never going to come up triple cherries, and money is never going to come out of the relief valve."
John: "It's a fuel consumer. What we want to try to do is, it's a pig and we want to put it on a diet" was really the best thing I could come up with for him because he said, "Well, I can make it a better return on my investment if I put it in a passbook account." I said, "Yeah, but the passbook account's not [laughs] going to keep you very warm."
Jeffrey: That's true. That's true.
John: Well, let's crystal ball a little bit as we wrap this up. What do you think the next six months to a year are going to bring for us in our industry?
Jeffrey: The next six months are still going to be tough, but I think towards the end of 2009 I have a gut feeling that things are going to start to turn around. We have some distance to get to before we get there. Like I said, it always gets better once again. You've just got to do what you've got to do to get to that point.
John: Right. In the meantime, where there's crisis there's always opportunity as well. I think the smart heating contractor is going to try to weave his way through. I almost hate to use this term. Do you see this current economic situation thinning the herd any? Meaning, there are a lot of guys out there in business and maybe a few that shouldn't be. Do you see this as thinning the herd?
Jeffrey: It thins the herd some, but it also increases the herd in others. The guys that are working for the mechanical shops that get laid off, well, this is what they know. Naturally, they're going to try to come out here and do it. You can't really blame them because this is what they know.
But it will flush the guys that don't know what they're doing or the bad businessman. It will flush them out. Now whether these guys come out that get laid off, when things turn around and if they get called back, are they going to go back to their jobs or are they going to still try it on their own?
While it does thin some out, it also brings a new crop of contractors. I don't have any problem with that. If it's a good contractor, they're more of an asset to me than they are anything else. If they're not a good contractor, they're not going to be around long anyway.
John: And they may be a tube slinger, and they're just going to be planting more seeds for you.
Jeffrey: Yeah, exactly.
John: Think about it that way.
Jeffrey: There's a revenue stream there. It's like anything else. The more popular something gets, the more people are going to want it. But there's always a shortage of qualified installers for whatever reason. So a lot of stuff gets put in that's not correct.
John: Again, it's a crisis and an opportunity all at the same time.
Jeffrey: Yeah. Call me. [laughs]
John: There you go. [laughs]
Jeffrey: 1-888-You'll Be Comfy. [laughs]
John: There you go. [laughs] All right, Jeffrey. Thank you very much for your time. I appreciate it. It's always a pleasure to chat with you. I hope whoever winds up listening to this got a little something out of it. We'll make it through. We always have, right?
Jeffrey: We always will.
John: There you go.
Jeffery: That's what you have to focus on. You've got to focus on you're going to get through it.
John: That's right. That's right. All righty, Jeffrey. Thank you very much, and try and stay warm when it hits zero down there in Pennsylvania.
Jeffrey: Thanks for the call, John.
John: All right. Thank you.
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