GETTING AN EDGE

hen Hester Painting &Decorating started itscommercial divisionseven years

ago, the plan was builtmore on promise thanpracticality. After all, thecompany had zero com-mercial customers, recallspresident Steve Hester.But he was convinced thatcommercial was a growthopportunity for the 41-year-old company.

The vision paid off.Today, the division ac-counts for 20-25 percentof Hester’s total revenues.

It’s an inspiring story,especially for the thou-sands of battered residen-tial contractors who maynow be considering seek-ing salvation in commercial work.Could they make the same leap suc-cessfully?

Some might—but only if they pro-ceed cautiously, intelligently and re-alistically. A rash commercialplunge could swamp an already-list-ing business.

Approach with cautionIt’s no wonder that residential

contractors dream of grabbing a sliceof commercial pie. With big-dollarprojects that can keep crews busy formonths, it all looks pretty attractive,says Scott Lemons, vice president ofmember services for the CommercialContractors Network in TakomaPark, Md.

Unfortunately, says Lemons, com-mercial is now struggling as much as

Paints, based in Orange City, Iowa.“It’s become very cutthroat,” hesays. “People are fighting each other

to see who can get to thebottom the fastest. Every-one is scrambling. And theGCs are encouraging this.They’re accepting bids frompainters, knowing full wellthe job can’t be done forwhat they’re bidding.”

Although maintenancehasn’t slowed as much asnew-build, property ownersare already taking bids fromunknown bidders, lookingfor the lowest price. Whilethis could give residentialcontractors an in, it couldalso prove disastrous if acontractor underbids orlacks the money to wait forpayment.

Promising possibilitiesStill, it’s not all gloom and doom.

There are opportunities in the com-mercial market. For example, com-mercial work accounts for half ofEunice Bokstrom’s business at De-sign Wallcovering in Edmonton, Al-berta, Canada. She goes afterniche-type projects such as small of-fices, high-end corporate work andrestaurants—projects where qualitymatters more than price.

“The profitability of commercialwork surprised me,” says Bokstrom,who has been in business 22 years.“You hear so much talk about howit’s so price-focused that I assumedit would all be low margins. Butniche work is very good, especiallyif you do supply/install.”

residential. And contractors in everysector are trying to enter other mar-kets, intensifying competition and

hammering pricing.“Few contractors have faced

things as tough as they are rightnow,” says Brandt Domas, a former30-year contractor who heads theCommercial Forum of the Paintingand Decorating Contractors of Amer-ica.

“New-construction commercialhas always been competitive, but it’seven more competitive now. Whatlittle work there is to bid on—andit’s pretty non-existent for new—isgoing below cost.”

Maintenance commercial work isscarcely faring better—although, aswith new-builds, this can vary by re-gion, Domas adds.

It’s a dangerous time for contrac-tors, agrees Pat Barry, regional tradesales manager for Diamond Vogel

8 PWC DECEMBER 2009

by Pamela Mills-Senn

Cracking the Commercial MarketAs residential implodes, hopes may turn to new sectors. Be careful.

W

Creative Evolution

Connecticut muralist Patrick Ganino pounds the pavement to find commercialwork, looking for new construction and major renovations. He recentlycompleted two 12-story exterior murals in Brooklyn, N.Y.—a two-month project.

WWW.PAINTSTORE.COM PWC 9

See EDGE on next page

Getting StartedConsidering commercial work? These pointers may help.

• Bid correctly. Have someone on staff experienced in commercial

bidding, and pay as much attention to the spec book as you do the

blueprint, says Pat Barry, of Diamond Vogel Paints. “The spec book is

actually the controlling document,” Barry explains. “Go through the

entire book, not just the section relating to painting.” Emphasizing

blueprints over the spec book “can be an expensive mistake.”

• Network. Treat networking and building relationships like a full-

time effort, says Brandt Domas of PDCA. Start with groups like the

Building Owners & Managers Association (www.boma.org), the In-

ternational Facility Managers Association (www.ifma.org), and the

Association of General Contractors (www.agc.org).

• Be persistent. GCs and property owners are typically most open

to new bidders when there’s been a problem on a job, says Hester.

“But you won’t know this, which is why you have to keep beating on

doors.”

• Show up. Attend meetings, go to trade shows, hand out your

cards. Become a regular and familiar face.

• Follow up. If Patrick Ganino emails a prospect and gets no re-

sponse, he calls. If that doesn’t help, he sends a book (created through

www.blurb.com) of his work. This usually gets their attention.

• Think creatively. Ganino visits granite and marble shops—fre-

quented by designers, architects and high-end customers—and offers

to install a wall free if they’ll let him hang his sign.

Muralist and decorative finisherPatrick Ganino also owes half of his11-year-old business to commercialwork—mainly specialty projects.The owner of Creative Evolution, inDurham, Conn., recently completedan exterior mural on two 12-storybuildings.

How does he find the work? “I hitthe pavement,” says the author ofThe Business of Faux. “Last Decem-ber, I was driving down the street,saw a restaurant that was opening,and went in and pitched a mural

and faux finish. I ended up gettingthe job: $30,000 on a walk-in.”

Mike Digilio, owner of DigilioDecorating in Forrest Park, Ill., alsoshoots for niche commercial jobs.His portfolio includes a photo muralin the lobby of the St. Louis GatewayArch and the entire interior of alarge Chicago restaurant—fourmonths of day-in, day-out work.

Commercial accounts for 10 per-cent of Digilio’s business, but he isangling to increase that. He’s inter-ested in getting a work visa for

Canada, where the economy is bet-ter, assisting contractors who occa-sionally need additional manpower.

Factor this inUnlike some contractors, Digilio is

happy specializing in smaller jobs.One reason: the extended—and po-tentially devastating—paymenttimes typical of large commercialprojects. “It could kill you, espe-cially if you’re a smaller guy,” saysDigilio, who recently declined acommercial job because of the fi-nancial risk.

“Someone once told me to nevertake a job that you don’t have themoney in the bank to cover. So ifyou’re doing a $5,000 job, youshould have that in the bank. Thisworks fine until you get to a$150,000 job. Then you need a lineof credit—and good luck with that.”

Domas seconds that warning.“Payments used to be 60 to 90 days,but now it’s more like 90 to 120 daysfor new-builds,” he says. “You musthave equity in your business inorder to carry accounts receivable—either actual money or an existingline of credit. The turnaround timefor maintenance isn’t as bad, but it’stightening.”

Consider: Hester’s biggest commer-cial job was a 700,000-square-foothospital addition. The nine-monthproject was completed in the firstquarter of 2009, and the companystill hasn’t been paid in full. “It’s beendragging on for four months now,” hesays. “We just sent in the final waiverlast week. This says a lot about theneed for cash flow.”

Terms for specialty-niche workcan be more agreeable—and morenegotiable. Bokstrom’s usual termsare 30 days.

10 PWC DECEMBER 2009

Ganino, on the other hand, getsone-third up front, one-third mid-way and the final payment within 30days after completion—no matterwho the client is. “If it’s a big-dollarjob, like $90,000, I don’twant $30,000 sittingaround at the end, so I’llsplit it 30%, 30%, 30%,and 10%,” he adds.

Lemons warns resi-dential contractors notto consider bidding on alarge commercial projectwithout enough cash toallow them to float thebill for at least fourmonths. After all, that one projectcould tie up a company’s entire re-sources for an extended period.

“You’re not bringing in new work,and you aren’t thinking about whathappens when the job is done,” hesays. “And now, you have no workcoming in and no immediate pay-ment coming in.”

Realize the differencesPayment terms aren’t all that di-

vides commercial and residentialwork. They are entirely different an-imals, the experts say.

“It takes a different painter topaint a house than it does a com-mercial building,” Lemons explains.“It’s bigger work.

“Residential contractors think thejob will go faster, but they’re not setup to manage that kind of job and tobe on it for weeks at a time. It’s thesame for commercial contractorswho want to move into residential:They think they’ll be able to do thiswith no problem, but it’s completelydifferent.”

In fact, Lemons advises residentialcontractors who are contemplating

any significant commercial work tobuild a business plan that separatesthe company into residential andcommercial divisions—each with itsown management team and crews.

That’s the approach Hester even-tually took, in creatingHester CommercialPainting. But not beforehe’d tried unsuccess-fully to stretch his resi-dential crews. “Wequickly saw this wasn’tgoing to work,” he says.“We had to hire a com-mercial crew.”One crew might work if

your priority is cuttingcost to the bone, says Hester. “But ifyour residential work is high-end andfocused on quality, then no.”

What other differences will resi-dential contractors en-counter? To name just afew:

• In commercialwork, deadlines areeverything. Sticking toproduction timelines iscrucial, and you haveno say over this sched-ule.

• Bidding is typicallydone off blueprints andspecs; you may not getto walk the project.

• Commercial means more paper-work, more licensing (in somestates), and more bonding and in-surance (the basic entry for generalliability insurance is $2 million; thiscould go higher, depending on thejob).

• You may also have to provideadditional waivers of liability andsubrogation, says Domas. He advisescontacting an insurance broker whodeals with commercial insurance.

“And all these requirements willbe validated,” Domas emphasizes.“Worker’s comp, general liability,vehicle insurance—all are very im-portant in the commercial market,and they will be checked.”

Taking the plungeResidential contractors who want

to make the leap should develop abusiness plan, analyze which mar-ket they can realistically enter, de-termine their strengths, and try toidentify “bridges” between theirstrengths and that market, saysDomas. “Once the business planningis done, and they have determined abridge to the commercial market-place—and it could be new con-struction, maintenance orbusiness-to-business—they have atarget they need to connect to.”

This is where net-working and relation-ship building are key,experts agree. While arelationship may notland you a lowest-bid-der job, it may at leastget you “the last look atmatching the lowestprice,” says Hester.

Most important,making the move tocommercial requiresthat a contractor have

his or her business house in order,says Domas.

“If a residential contractor hasgood job costing and financial sys-tems in place and a good sales sys-tem, he has a good chance ofentering a new market,” says Domas.“But if he isn’t operating as a busi-ness, then he shouldn’t jump intocommercial. It will eat him alive.”Contact Pamela Mills-Senn at

pms@charter.net.

EDGE from last page

Don’t have your residential crewstackle commercial, says SteveHester, who made that mistake.

“Never take a job that you don’thave the money in the bank tocover,” warns Mike Digilio.

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