Why HVAC Businesses Fail… and How to Avoid it

Every year almost 500,000 small businesses close their doors forever. During the same period in the same economy, over 100,000 small business owners become millionaires. The hvac industry experiences a similar imbalance. The number of hvac contractors struggling to survive far outweighs those who’ve reached financial freedom. After 35 years of observing thousands of contractors, I believe the wealthiest ones have identified and are constantly working to eliminate 10 factors that lead to business failure.

Failure to Move From Technician to Manager
Most hvac business owners are great technicians. Many feel no one can troubleshoot and repair problems faster or better than them. The irony is outstanding technical skills alone seriously limits business success. The income of technician business owners is limited by how much work they can do. In one day they might run three service calls, rush parts to the install crew, take checks to the bank, complete an overdue proposal and catch a sales call on the way home.

If you’re an “I can do it all” owner are you ever late for appointments, rush through sales calls, fail to plan or forget to keep promises? The seeds of failure, frustration and exhaustion are planted every time something important doesn‘t get done. One way to make the transition to manager (while working a crazy schedule) is to read a college level textbook every month. Textbooks containing indepth information on topics ranging from supervision to small business management can be purchased from Amazon or your closest college bookstore. Start your own research library and have a wealth of answers readily available as your business changes, grows, and prospers.

Failure to Embrace Change
Instead of adopting change early so it can be used as a marketing tool, a huge number of contractors wait until the last minute then waste irreplaceable time and serious money rushing to change. One of the world’s greatest thinkers said “Change is the actualization of potential.” Aristotle also discovered, “Change is continuous.” He knew it was impossible for anything, including business, to reach its full potential without constant change. Willingness to change is determined by attitude. William James, the Harvard psychologist gave us the secret to embracing change when he said,

“My greatest discovery in life has been that human beings
can change their lives by altering their attitudes.”

Failure to Permit Natural Growth
When customers are delighted with your people, products and services, your business will naturally grow. An amazing number of hvac contractors intentionally fight natural growth and try to keep their business at a “manageable level.” Instead of trying to limit growth, you must have a plan to continuously attract new customers. Even the best businesses in America lose up to 20% of their customers every year. To help you acquire a steady stream of new customers on a limited budget, e-mail me at jmueller@nopressureselling and I’ll send you a complimentary copy of 50 Low Cost Ways to Acquire New Customers.

Failure to Manage Growth
A surprising· number of contractors do grow, encounter problems, then go back to where they came. The most common reason given for reverse growth is, “We were bigger but found we made more money and had less problems when we were small.”

Almost every contractor I’ve known who intentionally downsized did not have a process to manage growth. If you don’t manage new growth and new people you create a myriad of new problems. Production, customer satisfaction and cash flow problems can multiply like rabbits on growth hormones. A process is a particular method of doing something involving a number of steps or operations.

W. Edward Deming, the Father of Quality Improvement said, “94% of failure is caused by the wrong process, not the wrong people.”

Your growth management process starts by answering some basic questions : What do we want to grow? (service by $150,000) How? (add senior technician , increase advertising $10,000, focus on tech selling Service Agreements) How will growth be funded? (current cash flow, new revenue from Premium Sales) How will results be measured? (revenue per truck, call backs, gross margin per job) Etc.

Developing a high profit low risk growth process can be as easy as pie:
Plan – Implement – Evaluate.

Failure to Acquire Business Skills
Many business owners work long hours, sweat making payroll, miss their kids’ ball games while hanging onto their business by their fingernails. Why? They lack the skills required to grow a profitable business. Two ways to acquire business building skills; learn them or hire people who already have them.

As a Premium dealer, you have an amazing opportunity to learn real-world skills that can skyrocket your business far beyond your competition . Ask your distributor for a list of No Pressure Selling® program subjects and dates.

Failure to Employ a Dedicated Sales Team
Imagine your business as an engine that pulls ore cars from a mine. You have the power to extract either 20 tons of gravel or 20 tons or high-grade gold ore, which load would you choose?

In your business it takes exactly the same overhead to install a premium comfort system (multi stage, variable speed, air purification, etc.) as it does an entry-level heating and cooling system. As the benefits of better comfort increase so does price and the need for a consultant to justify it. When you add the fact that most premium comfort systems are sold after 4:00 P.M. and on Saturdays, it’s easy to see why owners and technicians are not in position to sell premium comfort.

Most contractors fear hiring their first comfort consultant, but shouldn’t. Consider hiring smart people with full-time jobs who want to supplement their incomes by working a couple hours at night and weekends. Because their rent is paid and benefits provided by others, many are willing to sell comfort on commission.

It’s not uncommon for good people with the Wheel of Value® sales skills to make more money selling comfort than they do on their day jobs. Before hiring, make sure you can secure a registration at the next Trane Boot Camp/ASSET.

Failure to Overcome Overhead Drag
Nothing affects the bottom line as much as the top line. The larger your production team the greater your profit potential. On the other hand, a business that’s too small is like an underpowered airplane engine. Your limited production power can’t overcome the drag caused by overhead. Your “too small” business can taxi around forever but can’t take off and reach full profit potential.

Parkinson Law states, “Work expands to fill the time available for its completion.” Is this true in your company? Does your installation crew take full days to complete almost every job? One way to overcome overhead drag is to add accessories to replacement jobs that make sense. Because the overhead is already covered, gross profit becomes net profit and the job is still likely to be completed by the end of the day.

Failure to Build a Living Business
Positive cash flow is the lifeblood of business. The number one reason businesses die is lack of money to pay the bills. The second reason for early demise is talent size. The business wasn’t large enough to employ the talent required to survive the loss of a key employee.

KEY QUESTION:
If you were injured or couldn’t work for six months, what would happen to your business? If your business would fail without your direct daily involvement, you don’t own a business, you own a job.

Failure to Create Business Value
Over the years I’ve seen too many fine contracting businesses sold for littler more than the discounted value of tools and trucks and a token payment for a customer list spanning many years. It breaks your heart. If you’re going to be in business anyway, doesn’t it make sense to create a living organization that has value to someone else when you decide to cash in your chips?

When it comes time to sell your business, its value will be determined by earnings (net profits). Earnings come from sales. The sales process that generates the strongest, most predictable earnings will create the highest return for you and your family. Attend Trane Boot Camp/ASSET and learn the process.

Failure to Employ the Right Sales Process
Choosing the right sales process can be the difference between success and failure. After 50 years of statistical analysis, W. Edward Deming discovered that every process has a beginning· and an end and if the most important 15% of the process is implemented correctly, 85% of the desired outcome is assured. One of the most important things owners can do to assure the success of their business it to determine the most important 15%!

Think of every thing your business does as the Master Process; accounting·, hiring, installing, servicing, selling, etc. The foundational 15% is selling. Once the right selling process is operating effectively – 85% of your other business functions tend to fall into place. When you’re consistently selling premium products at premium profits, accounting is more exciting, hiring great people is much easier , and managing is less stressful and a whole lot more fun.

When I first went into business I set next to a very successful older gentleman on an exceptionally long flight. After about an hour of stimulating conversation , I asked his secret to success. He said “I make it a habit of studying people who fail in business then I do everything possible to keep from making the same mistakes.”

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