Commercial Commercial Coatings ScStartup
After registering the business as a sole proprietorship on August 1, Mr. Phillips spent the next six months composing the startup plans and performing an array of startup activities. The firm didn't start generating income until 2003 after it was granted a $60K painting contract as portion of a $3M estate house construction job in the upscale Wakefield community in North Raleigh. That first year in business QC grossed $190K in total revenue which afforded approximately 25% in pretax profit.
During the first three years of operation QC competed alone in the residential new construction and existing house repaint marketplaces. With pretax earnings running in the 20 to 25 percent range, the average endeavor grossed roughly $5K with the exception of a handful of estate homes. With no salesman on staff and working with a nominal marketing budget, sales grew at an uninspiring rate to $294K in 2005, affording less than anticipated gains.
During the business' third year of operation Mr. Phillips decided to abandon the residential sector entirely and pursue just commercial1 and industrial2 opportunities. Mr. Phillips took out low budget advertisements in The Blue Book, an advertisements publisher targeting commercial general contractors, commercial property owners, and property management companies. While working almost entirely in the commercial and industrial markets, the business grew by another $100K in 2006. The move from residential to commercial undertakings resulted in immediate increases in profit margins.
By 2007 QC was installing complex coating systems for quite large and renowned corporations including Pfizer, Progress Energy, Becton-Dickinson, and Merck. The CMs/GCs QC partnered with included Zachary, BE&K (now KBR), MJ Harris, US Contractors, and Fortney & Weygandt.
It quickly became clear to Mr. Phillips that the company should only run within the confines of the commercial/industrial market. After spending several years working in the high tech world of Printed Circuit Board production as a Quality Engineering Supervisor, the Founder was able to identify a degree of professionalism and quality control in industrial construction which was totally absent in the residential market. This provided an opportunity for Mr. Phillips to showcase his ability to develop and implement ISO5 compliant operating procedures and, once implemented into the business's operations, distinguish QC from all of the other regional painting contractors.
It recently invested $6K in website upgrades, business card redesign, new logo and tag line, along with a redesign of firm clothing, i.e., t-shirts, golf shirts, and security vests, etc. These changes are part of a renewed focus on establishing the company brand. Additional proactive attempts are being made to re launch the firm and are further expounded in Section 3 Marketing Strategy.
QC's active customer base includes commercial/industrial GCs and CMs, together with industrial production firms (OEMs)6. Maintenance painting deals with Tyson Foods, Sara Lee, and Herbalife include the application of industrial, high performance coatings. Because of the intricacy of the services supplied, QC now bills its customers at a relatively high speed, particularly compared to the residential market. Higher rates are well justified and pricing aspects are discussed in the subsequent section. The same key factors that drive the cost of industrial and commercial painting up are also factors that pose obstacles for smaller, less established contractors attempting to go into the market.
Cost Variables and Entry Barriers
The objective of this strategy isn't to chide the residential construction industry. There are a lot of contractors and subcontractors operating quite successful companies working entirely in the residential marketplace. Nevertheless, it is vital to point out the differences in various sectors of construction--if for no other reason than to underscore the competitive advantage possibility in QC. Most residential building is done by self employed (self-performing) contractors and subcontractors. Other than superficial reviews conducted by local municipalities, there is absolutely no regulation or oversight on residential projects, particularly when it comes to painting. There is rarely a written contract between GC and subcontractor. There are really no change orders, so extra work is performed at the subcontractor's expense, because there's no contract. Residential jobs are infrequently audited by OSHA7. There are really no proper procedures for submittals, invoicing, quality reviews, scheduling, or closeout.
Conversely, in order to compete in the industrial sector, painting businesses must comply with strict rules and regulations administered SSPC8 by OSHA, EPA9, Providers, Project Owners, CMs, Surety Businesses, and The Department of Labor. Contrary to the claims of the Department of Labor, operating costs are driven by these requirements up significantly. The majority of small companies refuse to comply with either cannot afford, or simply do not comprehend these regulations that are compulsory.
QC has successfully finished the pre qualification procedure using lots of CMs and continues to pre-qualify for important jobs in the area. Since 2006 the firm has been developing security policy, standard operating procedures and forms, and workmanship standards which meet or exceed industry requirements. The company has compiled an on-the-job safety record which meets all industry standards. It is a goal of the organization to obtain multiple certifications with the major accreditation firms OSHA, SSPC, and NACE11.
Process and Product Knowledge
High performance and high priced materials present problems for smaller, less experienced painting contractors. Even the possible difficulties can burn the experienced contractor these products pose. It's critical that installers have the complex processes needed to successfully implement high performance coatings as well as a comprehensive grasp of the volatile product characteristics. Procedure, price, and product knowledge are the crucial components that keep a lot of painting contractors from competing in the industrial building stadium. In reality, it is what keeps QC from competing in particular subsectors of the sector, e.g., water towers, mobile towers, and nuclear power plants.
It's normal to spend more than $350 for an individual two-gallon kit of high solids polyurethane, and high temperature coatings can run in excess of $400 per gallon. An ill prepared surface can certainly lead to a huge number of dollars in wasted time and materials --not to mention the irreparable damage to the standing of one. It is difficult for project and CMs owners to correctly qualify a coatings contractor for a specific project condition or application. QC is currently in the process of compiling a group of documents and certificates which will provide the information they need to completely measure the qualifications and capabilities of the company to project managers.
During the transition from residential and light commercial to industrial painting of QC, the overhead and administrative costs became clear very fast. The company's first launch to the industrial construction industry was a contract with Zachry to paint Wyeth Vaccines' new CUB building. There were easily forty hours logged just preparing the paperwork needed to execute the contract. The more info amount of office support needed to support the field operations is substantial and needs a certain degree of technical ability to perform properly. Training records, NDAs, Drug Screens, Schedule of Values, Insurance Certificates, Material Submittals, Change Orders, Security Plans, and Federal, State, and Local Authorities documents all need to be filed with the customer before any crews are marshalled. This poses another entry barrier for a lot of painting companies and is often very taxing on small businesses.
Other expenses that are banal to industrial painting contractors are insurance requirements with $10M coverages, payment and performance bonds, bid bonds, legal fees, bookkeeping services, equipment leases, and traveling. Most projects require the leasing of heavy equipment including scissor lifts, booms, swing staging, and scaffolding.
QC spent $100K in 2014 on traveling. Most of the work of the company is outside the Triangle Area. These are costs that are paid upfront which consumes cash. Managing cash flow is essential to being successful with sixty to ninety day payment conditions being the standard for the majority of firms. Again, this is only one of the more notable impediments to successfully competing in, and entering into, the industrial painting marketplace. Hotel, per diems, fuel prices, and idle time for lack of work are all actual expenses that must be funded well ahead of time of progress payment receipts.
The preceding high level review of the history of the firm emphasizes a few of the hurdles QC has already surmounted of doing business, in its first decade. The organization has managed to browse the entry barriers of the industrial building, and while doing so has created a respectable customer clientele. Coming off a record year in revenue and gain, create significant growth over the next five years and the organization is poised to take advantage of its current situation.
With fiscal and legal associates the correct staff, advisers, and accounting firm, QC should make fast progress toward becoming one of the highest painting companies in the Triangle Area. As laid out in the strategy that is following, the Founder expects the firm to make critical improvements in the next two years. Within the next five years QC painting crews are going to be a familiar sight on industrial building jobs all across North Carolina and its bordering states.