How to Successfully Grow an HVAC Dealership Part 2

PART 1 OF THIS TWO-PART SERIES CAN BE FOUND HERE.

Running an unsuccessful HVAC business is easy: Just trudge along with no clear vision for the future, no core values to guide your organization, and no business strategy to guide decisions, investments, or tactics.

Very few HVAC contractors go into business intending to fail, yet it has been shown that three of every 10 will be unsuccessful by their second year. The primary reason for this failure is not having a clearly defined and well executed business strategy. At its face, a business strategy sounds simple. We recently worked with a dealership who claimed their business strategy was simply to sell 10% more HVAC systems each year. At best, that’s a goal, at worst, it’s a hope. A strategy has business goals, but it also includes a detailed plan for how the business will achieve those goals in the near term and over time.

Some of the highest valued HVAC dealerships we’ve worked with were able to produce a well-documented business strategy along with supporting financial performance data and related documentation.

Strategy equals discipline and discipline equals success. If the goal is to one day retire and sell your company, you’d better have a robust business strategy in place. If your goal is to transfer the business to family as your legacy, do them a favor and have a clearly defined and well-documented business strategy. If you plan to milk a dying cow, don’t worry about developing a strategy because it’s already defined.

A business strategy is essentially a long-term business plan that acts as a 3-5-year roadmap for your business operations, business investments, organizational structure, sales and marketing strategy and tactics, brand positioning, and financial projections and metrics. A strategy is the execution plan to achieve the long-term vision and the short and long-term business goals of your HVAC dealership.

Kodak is unfortunately most well-known not for film, but for failing to define and execute a clear business strategy in a quickly changing technological and competitive environment. While the shift to digital photography was clear to Kodak, rather than seizing the opportunity to dominate this modern technology, Kodak focused instead on protecting their heritage film business. A decision that cost them dearly. Kodak’s goal may have been to sustain their leadership in film and photography, but their strategy, if they had one, neglected to define how they would achieve that goal over time. The rest is history…Kodak lost consumer share to the likes of Sony, Nikon, Cannon, and Olympus, and ultimately to smart phones, most notably Apple. Kodak held on to their commercial business a bit longer, but eventually succumbed to digital movie cameras such as Arri Alexa and Red.

On the contrary, from the release of the first iPod, Apple had a well-defined strategy to create a digital ecosystem that consumers would never want to leave. Photographs, movies, music, messaging, editing, streaming, personal computing, smart home control, and countless integrated apps. All technologies that cut deeply into siloed businesses like Kodak, Blackberry, and manufacturers of camcorders, navigational devices, personal computers, CDs, and DVDs.

Apple continues to brilliantly execute its strategy with an ongoing cadence of iPhone, iPad, iMac and MacBook iterations, Apple Music, Apple TV, HomePods, AirTags, AirPods, and Apple Watches. Their strategy is well entrenched, but they continue to look into the future to ensure it is sustainable with innovations like Apple Vision Pro and a host of ever-evolving subscription services.

10% and No Plan?

Let’s put these two examples into HVAC terms using real life examples. The HVAC dealership whose “strategy” was simply to grow 10% each year with no specific plan could be called “Kodak HVAC.” When asked how they would achieve the 10% annual growth, they suggested it would happen by relying on the experience of their technicians and positive word-of-mouth referrals. In reality, Kodak HVAC’s books showed declining sales and a compound annual growth rate of 5% over the prior three years vs. their stated goal of 10%.

Looking deeper, the limiting factor to Kodak HVAC’s growth was a changing technological and competitive environment. A regional consolidator had been acquiring competing dealerships, aligning them with a single manufacturing partner and focusing their sales on smaller, quieter, and more energy-efficiency systems with side discharge and inverter technology.

Kodak HVAC didn’t have the wrong strategy, it was just loosely defined, lacked a detailed execution plan, and had no contingencies for changes in technology and competitors. When pressed, the leadership of Kodak HVAC were able to articulate their strategy as achieving 10% annual growth by being the most technically proficient and trusted HVAC dealership in their area. From this point, they began putting greater emphasis on hiring and training technicians and focusing their investment on articulating their brand as the local trusted experts.

Recognizing how the consolidator had been winning market share through a strategy of acquisition and technological differentiation, Kodak HVAC leveraged their own strategy to turn the tides in their favor. They began to offer side discharge inverter technology which effectively commoditized the technology, leaving Kodak HVAC with a competitive advantage as the local trusted experts that can provide the right solution for each customer. They turned the consolidator’s strength into a weakness.

Now consider Apple HVAC: A dealership with a well-defined and well executed strategy. Working with Apple HVAC, it was clear their business strategy was intended to take market share by embedding themselves into the lives, hearts, and minds of customers. They approached each homeowner as an opportunity to provide whole-house solutions including “Home Comfort Solutions” with high-efficiency HVAC systems, tankless water heaters, and indoor air quality technology, and “Home Control Solutions” with smart thermostats, home control platform integration, and remote system monitoring.

The entire Apple HVAC staff was trained on their business strategy, including sales reps and technicians being well versed in selling, installing, integrating, and servicing Home Comfort and Home Control solutions. Their marketing budget was allocated toward social media and print advertising to educate consumers about the benefits of their unique product offering. Because of Apple HVAC’s focus on selling integrated solutions, their average per customer invoice and average 3-year customer value was estimated to be roughly 30% higher than that of their closest competitor.

So, are you a Kodak or an Apple? It is what’s in your strategy and how well that strategy is executed that will determine the answer. In summary, a robust business strategy is critical for sustainable success and growth, without exception. A good business strategy should include the long-term vision for your business, your short and long-term business goals, your organizational structure and purpose, your sales and marketing strategy and tactics, the focus and positioning of your company, how you will be differentiated in your market, how you will adjust to and leverage changes in technology and the competitive landscape, and your financial plans, projections and metrics.