If there's one word that can sum up business owners' outlook over the last year, it's “uncertainty.” Even though the recession has officially ended, the economy is not recovering quickly because businesses are too uncertain about the future to make substantial investments or hire more workers.
Business owners are uncertain about taxes, uncertain about regulations, uncertain about incentive packages, uncertain about the direction of the government — but most importantly, they are uncertain about consumer demand. If the demand is not going to be there, there are no jobs to be created.
That same uncertainty is found among the small-business owners who make up the HVACR contracting industry and it may color the coming year even more deeply.
How Comfortable Are Contractors?
In February 2010, the Air Conditioning Contractors of America (ACCA) launched the Contractor Comfort Index (CCI). The CCI is our industry's first leading economic indicator, offering a measurement of how ACCA's contractor members feel about their short-term growth prospects, including new customer acquisition, existing business and employment numbers. The CCI offers valuable knowledge on an ongoing basis — the more confident a contractor is about the short term, the more likely he or she is to invest — but will become even more valuable over time as we gain access to historical trends.
With an index of 50 or above indicating anticipated growth, the CCI has consistently painted a picture of a cautiously optimistic contracting industry in its first year. From a low of 55 in February to a high of 69 in June, contractors have believed all year that they were poised for short-term growth … but they have been conservative about how much growth they expect.
A Record Year
Yet despite their cautious reaction when asked point blank how they feel about the next month's prospects, anecdotally we've been hearing a slightly different message from many of our residential contractor members this year. It's a message similar to what I heard personally from many of our members at ACCA's annual Contracting Week events in October.
They told me that 2010 has been a banner year for many contracting businesses. Records have been broken. Some contractors almost seem sheepish about admitting how well they have been doing.
What's been fueling the growth for those contractors?
Hot, hot, hot. Well, let's face it — weather still plays a big part in contracting fortunes. And the 2010 summer was a really hot one in most of the country. (Not everywhere; for example, the Northwest part of the country experienced cooler-than-usual summer temperatures, which had a big impact on contractors in that region.)
Would you like a tax credit with that? Government programs also have played a role. The $1,500 high-efficiency federal tax credits supported by ACCA, put into effect this year at a higher rate than ever before, fueled many homeowner system purchases.
Remarkable rebates. In addition to federal tax credits, state and local government and utility rebate programs exploded throughout 2010. In some parts of the country, contractors have been able to combine tax credits and rebate programs on behalf of homeowners, which brought the customer's price down to astonishingly low levels.
A businessperson, not a contractor. Even more than the weather, rebates and credits, what distinguishes the record-year contractors from everyone else has been their approach to their businesses. They didn't panic when the economy changed. They inventoried their operations and cut back on nonessential operations while increasing investment in those areas essential for growth, such as marketing, education and new service offerings.
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Those contracting business owners that focus on the business, and implement solid management and planning techniques, have done very well for themselves and their customers. Those contracting business owners that focus on contracting and work primarily as senior technicians have not fared as well.
And Now for Something Completely Different, Maybe
Which brings us to the end of 2010 and the beginning of 2011. What's in store for contractors in 2011? If I had a crystal ball that works, I'd be a rich man. But let's start by pointing out that of all the factors listed above that fueled contractor success in 2010, three of the four are completely outside of a contractor's control.
Obviously, contractors can't control the weather. (For what it's worth, the Farmer's Almanac is predicting a cooler than usual summer season in 2011. Hey, they were right about this past summer.)
The 25C high-efficiency federal tax credits are scheduled to end this year. ACCA and several partners are working to extend them. But, given the current congressional turmoil — with an historic changeover election in the House, the expiring Bush income and estate tax rates, and political gamesmanship bringing just about everything to a halt — there are certainly no guarantees.
State and local government and utility rebate programs are always in flux, and national weatherization companies are working hard in local communities to seize control of funds that would be better spent on high-efficiency HVACR systems. There's no guarantee about how these rebate programs will play out in individual metropolitan areas.
Working on a business, not in it — now, that is something contractors can control. No matter what happens with factors outside his or her control, a contractor can gain a better understanding of financial operation, build customer loyalty, provide the right education and training for managers and employees, and focus smart marketing and planning on specific niches (or diversification into appropriate areas).
At the ACCA Conference in February 2011, and through our online and offline learning programs throughout 2011 and onward, these are areas in which we will continue to help contractors succeed. We are launching new certification programs and online classes next year, including a new Quality Assured recognition program focused first on helping those HVACR contractors in the hardest-hit segment of our nation's economy, new home construction.
These are programs built by successful contractors with one goal — to help contractors operate as professional business owners and achieve their dreams. After all, contractors became contractors because they are entrepreneurs. They want to build something successful and sustainable, for themselves and their families.
The biggest mistake some contractors make is to hinge their success entirely on things they can't control. They pray for extreme weather, build their marketing around programs (from governments, manufacturers or utilities) that can vanish overnight, depend on referrals from lead generation engines that foster a bid mentality and drive prices down, allow themselves to be thought of as a commodity labor provider … and then wonder why they can't get ahead.
That's why there has always been a large amount of churn in the contracting industry, even during good economic times. One thing can be said about the economy over the last couple of years: it flushed out some HVACR enterprises that probably shouldn't have been in the business to start with.
That's another reason why so many of our contractor members have experienced strong growth in 2010, while still feeling uncertain about 2011. When only the strong survive, everyone left will be strong. Every strong, smart contractor is now competing against other strong, smart contractors. It's going to make for a very interesting year.
Paul T. Stalknecht is president and chief executive officer of the Air Conditioning Contractors of America (ACCA). Contact him at 703/575-4477 or [email protected].