Trailblazers

The city of St. Charles, MO, marks the spot from which Lewis and Clark began their epic journey in search of a water route to the Pacific Northwest in 1804.

And less than a mile from where the legendary explorers pushed off from the banks of the Missouri River, the Jerry Kelly Heating and Air Conditioning Company — the Contracting Business 2006 Residential Contractor of the Year — blazes a trail of service excellence to homeowners who need a heating and air conditioning company they can rely on.

Company owners/founders Jerry Kelly and his wife Janet; General Manager Steve Miles and his wife Jill; and 43 eminently qualified and loyal employees begin each day with one mission in mind: to provide quality service, healthy air, comfort, and peace of mind to homeowners throughout the St. Charles region.

Small Area, Many Customers
Jerry Kelly Heating and Air Conditioning is a family-owned business founded by Jerry and Janet Kelly in 1977. Jerry had worked in the industry 12 years for his mentor, Ted Schoetker, at Ted Schoetker Heating and Air Conditioning Company. When Ted passed away, Jerry and Janet set up shop in a narrow, white brick building on N. Second St. That building is still the company's home, and business is booming.

An improved marketing plan, and a sales approach based on health, comfort, and indoor air quality (IAQ) has taken the company to more than $7 million in sales for 2005, which represents a 26% increase in sales over 2004.

St. Charles, a community of 70,000 single family homes, is the company's primary market for system repair and replacement, with an 80/20 split between residential and light commercial. The territory is highly concentrated, with seven minutes being the average distance between service calls. Most of the homes are post-WWII vintage, and are in need of new systems to replace their first or second systems. Most of Kelly's commercial accounts are comprised of restaurants and other small businesses.

Change Brings a Turnaround
Jerry Kelly speaks with the quiet assurance of a man who's made it, who knows it, and yet remains grateful to have weathered the storms that so often buffet an independent small business.

"We started out with five technicians and lots of used trucks in 1977. Today, we're doing primarily what we did back then, which is residential service and replacement," says Kelly. "Our main business is residential, because we had backgrounds in residential installation, and didn't really have the facility or manpower for new construction at the time."

Steve Miles, a perceptive troubleshooter, has been with Jerry Kelly Heating and Air Conditioning for 12 years. An electrician by training, he owned an electrical contracting company for a short time, and then worked at another electrical contracting company, helping it establish a service department. He married Jill Kelly in 1994, and joined the Jerry Kelly Heating and Air Conditioning Company as a dispatcher. He was named general manager four years later, and as such is involved in every aspect of the business.

Miles' promotion to general manager at Jerry Kelly Heating and Air Conditioning coincided with the consolidation movement, which was feared might threaten the existence of small HVAC companies.

As hard as it was to admit, the Jerry Kelly team knew some important changes were required if the company wanted to grow, let alone survive. With a mandate for survival, Miles was able to bring some new ideas to a company that realized it couldn't become frozen in time, and couldn't rely on a seat-of the pants approach to policies and procedures.

"We started to become more professional in the way we ran our business," recalls Miles. "We saw that you couldn't compete on price; the low bidders were going broke. We realized that if you did a quality job, you had to charge for it.

"We started offering more extras, such as insulated plenums, a sound reduction package, and new return air drops. We made maintenance agreements and extended warranties standard with almost every system we install, and we've always recommended higher efficiencies, to add value and justify the cost.

"Everything's changing and we want to change with it. That's our philosophy, and we're doing a better job today than we ever did."

Call to Service
An important tradition at Jerry Kelly Heating and Air Conditioning that was in place at the time of its mid-90s resurgence was a fierce commitment to 'round-the-clock residential service.

"It was a good niche for us," remembers Jill Miles, who helped run the company as soon as she was old enough to answer a telephone.

"Many of our competitors were in new construction, so we really grew on our reputation as a residential company that was there for the customer. We didn't just say '24 hour service,' we followed through.

"The phone would ring at 2 o'clock in the morning, and I would wake dad up and tell him someone's furnace was out. We really grew on our service reputation."

Today, that tradition is carried on by everyone at the company. "One of the most important keys to success is having wonderful people that work well together as a team" says Jill. "They're ready to help the customers at all hours of the day and night; we constantly get great positive feedback from our customers on how friendly and knowledgeable all of our staff in the office and in the field are. They are the ones responsible for keeping the customers happy, safe, and comfortable. They ARE Jerry Kelly Heating and Air Conditoning."

Excellent service, innovative selling, and the ability to adapt to change are key survival tools for Jerry Kelly Heating and Air Conditioning Company, our 2006 Residential Contractor of the Year.

Consistent Methods
As general manager, Miles proceeded to improve upon some less than efficient practices and procedures. The aftershocks of change ruffled some feathers, and a handful of employees left the company. With time, however, the new methods have become second nature, and all duties — from bookkeeping to installations — have vastly improved.

"We have systems and procedures for everything," says Miles. "Fifteen years ago, I could look at a furnace and tell you which of our technicians installed it, by the way it looked. Now, everything is consistent from one job to the next. You can tell by looking at it that we installed it, but you can't identify the technician, because they all do it the same way.

"That's also a real tribute to our installation manager Jack Witte, who was himself a field technician for 25 years," says Miles.

"Jack handles the installation training, and makes sure that our installation technicians receive the tools, training, materials, and information to install every system properly while trying to exceed the customers' expectations."

Selling Healthy Systems
A key element to company growth has been a move away from efficiency selling, toward a focus on selling healthy systems, or systems selling.

To do this, the company incorporated all of the newer, state-of-the-art IAQ extras into its system pricing, and allowed customers to opt out if they don't want the company's entire Healthy Air System.

"We took 10 SEER units out of our price book five or six years ago," says Miles. "Almost everything we've sold for the last four or five years has been 12 SEER and higher. Now, the industry minimum is 13, and trying to be different by recommending high efficiency equipment won't work in a 13 SEER world.

"With the mandatory 13 SEER, you can no longer differentiate yourself from the competition by selling efficiency, so comfort and health are the two frontiers to sell by," says Miles. "More and more homes are getting tighter and tighter in an effort to save energy, which keeps all that nasty air inside.

"The EPA says indoor air is more polluted than outside air, but it hasn't established any standards or efficiencies for indoor air quality. Therefore, educating the consumer on that aspect of comfort, and what's available to clean up their home, is definitely the new frontier."

With the same size workforce, the company has increased its average sale price by including accessories in its Healthy Air System, explains Miles.

"Customers get all the options included, plus extended warranties, a 10-year parts and labor warranty, and free maintenance for the first year or two, depending on the system."

Miles says not every customer appreciates the notion of IAQ, unless they're trying to alleviate an allergy or asthma problem.

"The customers who have never had a perceived need don't see any value in IAQ," says Miles, "and they'll opt out of that part of a system.

"But overall, IAQ is gaining more success. The more education we can bring to the customer, the more sales we'll make."

To help prospective customers better understand IAQ, Miles put on his author's hat, and compiled a quality piece of marketing, Your Guide to Indoor Comfort. It's a 30-page booklet complete with facts and figures on air quality, with references from satisfied customers, answers to the most common homeowner questions, and an explanation of various system options.

Jerry Kelly Heating and Air Conditioning relies heavily on referrals, and advertises mostly through direct mail and cable TV, both of which enable it to focus closely on its market. "We know our demographic areas, and we target them" adds Miles. "That way, when they have a problem, hopefully they'll remember to call us."

Surveys Track Service Habits
Customer service surveys are automatically sent as follow-ups to service and installation work conducted by the Jerry Kelly technicians.

"Our guys do a great job and are always rated in the high 90s on their customer satisfaction surveys" Miles reports. "We survey one hundred percent of the customers we serve daily, and we receive around a 27% response rate."

At Jerry Kelly Heating and Air Conditioning, customer feedback gets noticed.

"If I see a survey that has any negative comments, I follow up with the customer," says Jill Kelly. "We never make a battle out of it. We follow whatever the customer perceives to be the right thing to do to make something right."

Mistakes, however, are rare.

"We've had 17,000 surveys conducted over a period of 3 years, and we've averaged a 97% satisfaction rating." recalls Jerry, who insists that his technicians look the part of service professionals. Company uniforms are clean when the day begins, no hair is allowed to grow below shirt collars, and earrings or exposed tattoos are not allowed.

Training Keeps them Sharp
Jerry Kelly Heating and Air Conditioning is committed to training all personnel to be on the leading edge of industry knowledge. Miles says all of the company's technicians will be NATE-certified in two years, and in March 2004, 100% of Kelly's field personnel acquired combustion and carbon monoxide certification by the National Comfort Institute.

Jerry Kelly technicians have a knowledge base that's the envy of the region; and the competition knows it.

"You know you're doing something right when your competitors tell people to call Jerry Kelly when they can't figure it out," says Jill, alluding to something that's happened more than once.

A competitor's service technician once asked Jerry Kelly Heating and Air Conditioning to install the furnace in his new home, and confessed to being very impressed by the Kelly company's methods.

As an incentive for top performers, seven trips are awarded each year to outstanding employees, based on their contributions to the critical success factors that are measured within the company.

"Give someone money, and they spend it on the bills," says Miles. "If you give them a trip, they'll have the memories, and the pictures, forever."

The Jerry Kelly Heating and Air Conditioning Company has made significant investments in training. It brings outside experts in-house, for training in soft skills, selling, and technical skills.

Guest trainers include Charlie Greer of HVAC Profit Boosters; Mark Matteson of The Pinnacle Group; Joe Crisara of Big Time; Jim Davis of The National Comfort Institute; and Ellis Pracht of Heat Exchanger Experts, the author of Heat Exchanger Experts Residential-Heat Exchanger Manual.

Pracht travels around the country with a 30-ft. trailer to teach techniques for finding cracks in heat exchangers (see www.heatexchangerexperts.com).

"For our own in-house training, we also invested in Charlie Greer's Tec Daddy Series and the Air Conditioning Contractors of America's (ACCA's) People Builders," says Miles.

Company participation in industry events such as the ACCA convention and HVAC Comfortech has resulted in tremendous growth, as the company has maneuvered through its maze of change.

As ACCA members, Kelly and Miles participate in an ACCA MIX Group (Management Information Exchange), which consists of small groups of contractors from the U.S. and Canada who offer advice to each other on everything from daily operations to long-term strategic planning.

"The MIX Group has had a lot to do with our success," says Miles. "It helps point out your warts, and shows you where you need to change."

The MIX Group helped Miles realize that even seemingly inconsequential items — such as the color of uniforms — can make a difference in whether or not the company gets noticed by potential customers.

"Our company color is green and the MIX Group helped us realize that by sticking with the basic blue uniform, we weren't differentiating ourselves, so we switched to green."

Miles also holds membership in the Service Roundtable, which he describes as "an awesome networking tool, one that enables you to talk to other companies, share problems, and see if they have a solution. It gives you a place to vent to people who understand your problems and can give you good, legitimate responses.

"Out of all the organizations we belong to, it's the networking with other contractors that brings the most value. After 10 years of conventions, we see how we used to be the neophytes, and now, we're able to give back to the other contractors."

Service Agreements as Survival Tools
Everyone talks about service agreements, but Jerry Kelly Heating and Air Conditioning is proof that selling service agreements is possible, and that by having them, a company can survive the dry spells. Twelve years ago, the company had about 400 service agreements in place. Today, that figure approaches 4,000.

"The quantity of our service agreements drives the business," says Miles "We try to include everything in the SAs: air cleaner, humidifier, UV light, everything, so there are no 'gotchas' during the maintenance call.

"By including service agreements with most of our equipment sales, we're conditioning our customers to get their equipment maintained twice each year, and it has worked out well for us. When things are slow, we have maintenance visits to perform.

"And in peak seasons of hot or cold, we have an advantage, because many of our current customers' systems aren't going to break down, because we've already been there. That way we can concentrate on taking new business, as other companies become backlogged during the weather spikes."

Philosophy of Private Label
Installation proposals include a private label system, called the Jerry Kelly Signature Series, and Trane. About 36% of 2005 sales were private label systems.

"We're very happy with both Trane and our private label manufacturer," says Miles, "but if we would ever have a problem with the manufacturer or distributor, and want to change manufacturers, private labeling allows us to keep it the same brand no matter who manufactures it."

"Some of our older customers tell us they want the equipment that 'Jerry puts his name on,' thinking that if he's willing to put his name on it, they're willing to buy it.

"We found equipment that we thought was sturdy and dependable, and deserved our name on it. Many companies will private label lower end products. We decided we would do the opposite and private label higher end equipment 'made to our specifications.'"

Consumer Guidance
Jerry Kelly Heating and Air Conditioning sees more educated consumers coming together at the intersection of Comfort & Service.

"Without naming competitors, we try to open customers' eyes about lowballers, or influence them to investigate further the contractor they're considering doing business with," explains Miles, who encourages his customers to shop around based on key service parameters.

"How do they treat their employees? How much turnover do they have? How long have the men who are working on your system been in the industry? Are they fresh out of high school or have they been at it for 10 to 15 years?

"The more consumers know, the better we can do for them," says Miles. "I hope we can raise the bar for everyone, because that's what we want and what the industry needs. There are too many garage mechanics working out of their pickup trucks. And the media's not going to help us, because they're looking for the blood 'n guts stories about unscrupulous companies.

"And while NATE certification is a step in the right direction for the industry, until customers start requesting it, not everyone will commit to becoming NATE certified, as we have."

Two hundred years after Lewis and Clark, this team's vision and determination continue to make service history in St. Charles, MO.

Congratulations to Jerry Kelly Heating and Air Conditioning Company, Contracting Business' 2006 Contractor of the Year!

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5 KEY Success Factors

Jerry Kelly Heating and Air Conditioning, Inc. tracks its performance along five key critical success factors:

• Dollar per hour revenue
• Customer satisfaction
• Callbacks
• Equipment sales
• Service agreements