Advice to HVAC Contractors on Making the ESA Sale, Avoiding Anklebiters, and Long Term Relationships
by Thom Brazel, Chairman of the Mechanical Service Contractors of America (MSCA) Board of Managers and General Manager of West Coast Operations for Hill York, a leading provider of commercial air-conditioning and energy solutions. This 75 year old company is a leading provider of commercial air-conditioning and energy solutions with six locations across Florida. With nearly twenty years experience in the HVAC industry, Brazel is a LEED AP, and was part of the Task Force that created the MSCA LEGS (Labor Estimating Guide for Service) as well as the MSCA Green Star certification and MSCA Green PM.
Note: This article appeared in HVAC Business on June 28, 2011. The Building Advisor wanted to get it over to the blog for archival purposes.
When I look back at the HVAC industry over the last few years, I’m amazed that in 2007, nobody in our industry was talking about LEED or green. At that time, honestly, finding enough retrofit and service techs was an HVAC company’s biggest problem.
Now it’s absolutely different. I’m hearing anecdotally that a 60% decrease in HVAC contractor business is common. We’ve had people flat out tell us they don’t know what to do. Contractors who used to be in residential and light commercial are competing with bigger companies, because the smaller projects have dried up.
I call them the “ankle biters,” because they’re underbidding; they want to get the job now, get the money and move out. It’s creating significant price competition. However, many of the small guys are going under, and the larger companies that aren’t adapting to change are going away as a result of competing a losing battle on price.
Anklebiters Vs. Value
We are now seeing a culture shift between contractors competing merely on price, and those companies really executing on more of a value-add. And I see an ever widening rift between these two types of companies. We can fight over the scraps for awhile, but the smaller contractors who are in it for the short term will eventually run out of cash, fall away, or get gobbled up by a bigger company.
Many contractors seem to be dealing with difficult times by grieving over it, rather than reinventing themselves. They go from denying there’s a problem, to being angry, to bargaining and making deals, until they’re depressed and finally move into acceptance of the marketplace for what it is right now. Unfortunately for many companies, it is now too late.
A lot of businesses think if they stick with it, things will go back to the way they were.
Everything Existing Is New Again
At Hill York, our focus for decades has been predominately on new construction, and we’ve had to adapt beyond an additional focus on service, maintenance and retrofits all the way to creating safer, healthier buildings that are serviced from a holistic viewpoint.
We have restructured the company in response to current economic times, and made multiple changes to provide solutions. The biggest change is our attention to existing buildings, and energy driven retrofits. We like to say, ‘It’s only a new building once, but it’s an existing building forever.’ That is where the majority of our focus now lies.
Two years ago, our hyGreen division [Hill York’s team dedicated to providing strategic, energy-saving solutions to new and existing buildings] was a department made up of seven or eight people. Today, it is becoming a company-wide culture. Almost every retrofit project we do has an energy component. We now don’t simply take it past the hyGreen team – we ask ourselves going in, “what is the hyGreen component of everything we touch?”
We’ve sold approximately 35 Energy Solutions Agreements (ESAs), and we use a building performance diagnostic program, BuildingAdvice, in conjunction with many of them. BuildingAdvice uses data collection and analysis to generate comprehensive reports such as energy benchmarks, assessments and audits with escalating levels of detail on improving energy usage in the building. There are other tools available, but BuildingAdvice is our preferred tool because it’s automated and applicable to the widest number of building types.
At Hill York, we have it structured where the customer pays for the initial energy reports only if they don’t elect to complete a project we recommend as a result, assuming that project meets their buying criteria. By and large, we know there’s the potential for energy savings in pretty much any facility we survey, so we have little risk of not finding a viable project.
If you’re the driver, you’re never going to get driven around. My advice to HVAC contractors working with an ESA model is that right now, it’s a financially-based sale, but it’s a relationship-based sale as well.
You have to show the hard numbers on ROI or it’s not going to happen. Tools like BuildingAdvice reports help to quantify statements. [Hill York’s hyGreen also partners with other companies, including utiliVisor, OptiNet, Energy Expert, and SmartCool, to sustain and measure energy performance for commercial and industrial businesses.] For example, in Florida, HVAC is typically 60% of a building’s overall utility cost. We can anticipate overventilation, but measuring carbon dioxide levels with BuildingAdvice helps us put a dollar figure to it, rather than simply being speculative. The findings have to be real, and tangible. But that’s only half the battle. You need a customer who knows and trusts you. A customer who sees you as a partner.
Learning from Mistakes
Here’s a little example of where Hill York blew it with a potential customer. We were recently going after a maintenance agreement with a customer who has been using another vendor for years. From a pricing standpoint, our proposal on the 200,000 square foot commercial office building was in the same ballpark as the other vendors. Our program was clearly a value-add to the potential customer, as it included a simple energy benchmark, determined the building performance relative to other buildings and identified a handful of opportunities, all of which yielded significant energy savings opportunities. Here’s how the conversation went after they’d received that info:
Potential Customer: “Thanks for the info. Good stuff! However, we are happy with the folks we’ve been working with. We know them and they know us.”
Hill York: “If your current vendor is truly looking out for your best interests, why have they never mentioned any of these cost-saving opportunities to you before?”
Potential Customer: “Good point, however, now we are aware of the opportunities for savings, and we really appreciate the information!”
Long story short, we didn’t get the maintenance agreement, and the other company did the energy projects we recommended.
Where did we fail? We used the finest technologies available to gather data, did the analysis and proved to the customer we were smarter than the other guys, but we didn’t bother to develop a level of trust and rapport first. Did we differentiate ourselves? Absolutely. But we missed the most important piece – the relationship.
Relationships Still Key
During challenging economic times, the companies who survive will do so due to strong relationships. Work within your company’s relationships, and strengthen them with the credibility that comes from harnessing the information that can be obtained from the technologies that are readily available. Continuously look for ways to make every one of your customers operate their facilities better, and they will remain your customer.