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LEAN, GREEN AND SERVICE-ORIENTED (05/05/2011)

By Joanna Masterson, Construction Executive Magazine

About five years ago, Rick Leal, president of Florida-based Vila & Son Landscaping, discovered it was time to take business to the next level. At the time, the firm was successful in concentrating almost entirely on commercial construction installations, offering landscape and irrigation services through its nine offices statewide. But then Leal joined the Next Level Network—a peer group of seven non-competitive landscape companies from across the country that meet three times a year to share ideas on improving operations and serve as each other’s informal board of directors.

“One of the first things the group pushed us to do was change our model to balance our revenues by focusing more attention on maintenance and growing revenue in that area in 2005 and 2006, prior to the market decline,” Leal says.

Now, the 27-year-old company’s workload is split fifty-fifty between new construction, which is stabilizing, and maintenance, which is growing.

“Strategically, this was a very good thing for us. The reason we’ve been able to survive is we had a good head start in terms of improving the maintenance side of the business,” Leal says.

Gary Mallory, another member of the Next Level Network who owns Heads Up Landscape Contractors in Albuquerque, continues to push this service-centered message today.

“Going forward, almost every construction company needs to have a service part of its business that is more recession-proof,” Mallory says. “For us, maintenance is about half of total revenues; before, it was only 10 percent.”

Mallory has been through several recessions since he and three high school basketball teammates started the company in 1973, before their freshman year of college. Mallory, now the sole owner, began by installing irrigation and then added landscape and maintenance services. The firm was doing about $25 million in business three years ago, but the installation side has shrunk by about 35 percent since then. Through careful planning, Heads Up has overcome the lost business by continuing to grow the maintenance side of operations.

“It has been our saving grace through the recession,” Mallory says. “Each boom time I’m planning for the next slow down. They can be really painful if you don’t manage your debt and capital acquisitions. People who are struggling now failed to right size their overhead. They don’t do maintenance or went out and loaded up on debt, assuming the good times would last forever.”

Heads Up moved equipment typically used on installations to maintenance jobs, and it put design staff to work for clients seeking sustainable landscapes in order to get government rebates.

For Vila & Son, which has more than 700 employees, the last few years have been about getting as lean as possible. Because landscaping occurs near the tail end of most projects, Vila & Son still had a lot of backlog in 2008 and 2009. But when rapid declines became apparent at the end of 2009, Leal had to make some tough decisions.

“We’re a family, so it was hard to make the cuts we had to make,” he says. “We’ve found our new reality and our new size in terms of overhead and what we can sell on a regular basis. We have to be leaner and do more with less.”

The New Normal
Despite some signs of new construction activity, it’s unlikely firms will return to the level of prosperity experienced during the peak boom times. For now, with design-build work still hard to come by, the outlook is pretty familiar: intense competition for public projects and maintenance contracts.

Vila & Son has 50 to 60 jobs going on at once—mainly schools, hospitals, offices and roadway beautification projects. Upon completing projects for the Miami International Airport and two high-profile mixed-use developments in 2009, the company lined up jobs at the West Palm Beach Marriott and Nemours Children’s Hospital in Orlando, Fla.

“Today’s customers have very tight budgets; a lot of it is about price,” Leal says. “In addition, everybody is conscious that the teams and subcontractors they hire can get things done on time. There is a lot of scrutiny these days, which is why we can win work. We’re filling out more prequalification forms than ever.”

On the maintenance side, customers want value for their dollar, as well as to work with contractors that have a good reputation, track record and references. “They want someone who is proactive and can solve their problems,” Leal says.

Prior to the economic downturn, only about 8 percent of Heads Up’s contracts were for public work; now it’s up to almost 80 percent public work on the installation side. Currently, the firm is working on city road medians, as well as the Bachechi Open Space in Bernalillo County, a 35-acre park with multi-use trails and an urban forest. Heads Up also does ongoing maintenance for an Intel plant and several residential subdivisions.

Sustainability—especially xeriscaping, or water-efficient landscaping—is an essential part of customer satisfaction. Heads Up became a leader in xeriscaping 15 years ago, when a few new large subdivision projects required low water usage.

“It appealed to us to be good stewards of the land, but it turned out to be good business too,” Mallory says. “We got involved early on and did water use calculations and selected a plant palate that used low amounts of water.”

With customers looking for better value with every transaction, contractors must think through all phases of the job: design, installation and maintenance.

“You can’t sell expensive lots if the landscape isn’t attractive. We’ve learned to make it attractive, use little water and have low maintenance costs,” Mallory says.

Through its commitment to sustainability, Heads Up has recycled 6 million pounds of waste. It’s also installing a lot of central control systems to monitor watering. (Water valves can be turned off electronically when it precipitates.)

Cisterns are becoming more popular, too. “Santa Fe mandates them on commercial projects above a certain size. Some people resist that, but the regulation is what it is,” Mallory says. “You have to embrace it and look at it as an opportunity rather than a nuisance.”

Staying Relevant
For some contractors, opportunities are opening up where there previously was no room for growth: the residential market. Though new home construction is still slow, remodeling and backyard living areas are keeping firms like Rosehill Gardens in Kansas City, Mo., busy.

“People are spending more money on their own homes as opposed to buying a house or building a new home,” says Curtis Stroud, vice president of Rosehill Gardens. “Instead of moving to a $600,000 house, a customer living in a $350,000 house will add $20,000 of landscaping. Spending that money on landscaping increases the value and the homeowners can enjoy it at the same time.”

According to an American Society of Landscape Architechts survey, residential trends for 2011 include exterior lighting, permanent seating areas, fire pits, and wiring for stereo, Internet and television access. Efficiency is a buzzword as well: low-maintenance landscapes, native plants, vegetable gardens, water-efficient irrigation, permeable paving and rainwater harvesting.

Rosehill Gardens, whose 120-180 employees perform about 200 projects annually, has adapted to customers’ changing needs since founder Evert Asjes started mowing grass and planting flowerbeds back in 1914. Today, the company has the expertise to handle just about any outdoor job: landscaping, hardscaping, fire pits, irrigation, lighting and maintenance.

Stroud and Gary Weidenbach, who have a combined 35-plus years of experience at Rosehill, purchased the company from the Asjes family about four years ago, just as the economy was going south.

“It hasn’t been easy, but we’ve survived and things are headed in the right direction,” Stroud says. “We’re getting more phone calls than a few years ago.”

Though Stroud says this year is leaning a little more favorably toward residential work—especially patios, outdoor kitchens, retaining walls and water features—Rosehill also performs a healthy amount of commercial jobs for parks and community centers, retail and office centers, health care facilities and professional sports stadiums. The last two years included jobs for Arrowhead Stadium, where the Kansas City Chiefs play, and Kauffman Stadium, home of the Kansas City Royals.

From The Plaza, an upscale area of downtown Kansas City that Rosehill has maintained for the past 40 years, to annual work at the Loose Park rose garden and phased work on a commercial mixed-use project just north of Town Center Plaza, long-term client relationships are a critical part of success.

“We’re the kind of company that never wants to lose a relationship. We’ll do things over and above what’s expected,” Stroud says. “We don’t like doing inferior work even when asked. If someone wants you to cut corners, there are times we say, ‘let’s back off quantities to meet your needs instead of backing off on quality.’ This is what keeps you relevant. They don’t see you de-value your product by trying to do things cheaper than the next guy.”

In this age of cost-consciousness, commercial customers are holding back on landscaping that isn’t absolutely necessary, such as seasonal color change-outs, and are focusing on “naturalscapes” (e.g., native grasses that last longer and don’t require constant mowing). At the same time, places clients didn’t want to devote project funds to five years ago are turning into moneymakers for landscape contractors.

“They may want a certain amount of trees to shade a parking lot or to put on a green roof,” Stroud says. “The green movement and water conservation are being taken into consideration with everything being built now.”