Do you feel as though your business world is changing too quickly or that our industry is in the middle of a pendulum swing that will simply come back and revert to normal before swinging to the other side? This is often the interpretation of those that have been around for a while and in my opinion can be a fallacy of experience. The business world has been changing and as opposed to a temporary swing, many industries have experienced a radical shift.
I would like to examine a few other industries prior to discussing the disaster restoration industry and a look into effective strategies in order to navigate the treacherous waters in the future. First lets examine the world of a taxicab company. Previously the large taxi companies in many markets were able to establish effective barriers to entry by doing political favors and by bidding top dollar for city medallions and airport slots. They maintained their competitive position by controlling entry into their market and limiting the supply of cars in any given market. Companies like Uber and Lyft have created a very disruptive shift in the taxi marketplace. They now have created hundreds of new competitors in markets where large companies had erected large barriers to entry. The average driver that depended on a central dispatch for their orders can now set up their own company and only share 20% of the revenues with the corporation. The driver gets to works their own territory, schedule and keep the bulk of their fare. The cab companies and politicians are fighting the process but appear to be acquiescing as the courts have continued to support this new business.
I recall listening to a radio station about twenty years ago where the host was discussing how music services were not going to survive and were only a passing fad. His opinion was that the audience would return to the radio since it was proven, mobile and easy. Now you can create your own radio station through many services such as Pandora, Amazon Music, Apple Itunes, Spotify and many more. Some of these are free and others are available for a small $10-$15 per month fee. The revenue model and entire radio experience has fundamentally changed and will not likely return – I say this as I am listening to my Amazon music station with nearly unlimited free playlists due to my Amazon Prime membership.
I started in the insurance restoration industry nearly thirty years ago. In that time the majority of insurance was sold through independent or captive insurance agencies. According to the Insurance Information Institute in 2013, 67% of those purchasing auto insurance checked received an online quote. According to the New York Times, the direct sales channel accounted for 28 percent of United States auto insurance sales in 2012. This is staggering for an industry where most people purchased insurance from their agent down the street and simply renewed every year with the agent who became their friend. New players are lining up to participate in the industry as well with Google and Wal-Mart stepping into the supply chain. Google is officially licensed to sell insurance in most states and Wal-Mart is opening insurance kiosks in many of their stores. The insurance business used to be a very predictable model where the agent worked hard for many years to establish a client base and then was able to depend on a consistent and steady revenue stream for the balance of their career.
Disaster restoration was built on a model of service to insurance companies – both agents and adjusters. Many companies defined their company as an insurance restoration contractor. Many companies have now shifted claims management to third party administrators, deductibles have increased drastically and over one-half of the commercial premiums are written through alternative markets including self-insurance. I consider my situation to be fairly normal and I just renewed my homeowner’s policy and used a $2,500 deductible and have dropped my local agent and purchased directly from the company. Several years ago I had to file a homeowner’s claim and my agent told me that I had to call the company directly to report my claim. I figured that if my agent’s only role was to collect the premiums then I could save some money and go direct. This scenario is playing out in a similar fashion across the industry and is impacting how and where contractors get their work. We have also seen encroachment of other businesses into the restoration field. In Florida you will find insurance companies starting their own restoration department. This is where I can insert my commentary about the fiction of a 10% overhead! Lowe’s purchase of Alacrity is giving them a platform for offering restoration services, which has been seen on projects in the Miami area and potentially many more markets. After receiving very high finder’s fees, plumbing companies are jumping headfirst into disaster restoration. Given these trends, here are some considerations for your strategy.
1. Develop a robust marketing strategy that focuses on receiving work form many different sources – not just agents or adjusters.
2. Make sure that you do not receive more than 20% of any of your work from any individual source and ideally no more than 10%
3. Consider adding to your marketing budget so that you can influence your work sources more aggressively.
4. When working with TPA programs make sure that you have alignment with their company strategies and claims philosophy. There are many programs and they are not all built alike.
5. Routinely review your client list. If you do not have a fit with any of your clients then put yourself in a position to replace them.
6. Focus strategies on the end user – either residential or commercial – and realize that your competition is doing the same.
7. Become proactive and strategic. Make sure you have a solid strategic plan and proactively manage your business. Determine your priorities – if you do not then you are working off someone else’s priorities which often result in crisis for your business.
8. Have a comprehensive program for measuring the metrics in your business. This can be a simple off the shelf version of QuickBooks or a very expensive program such as Timberline. The key is having a great understanding of the program and then having very timely information in order to make timely decisions in your business.
9. Be on the lookout for quality staff. Today’s staffing environment is very challenging. While there may be a reasonable unemployment rate, there are few quality candidates. The people you want working in your business are likely already working so you will have to find them and give then a reason to work for your company.
10. Manage your capital. If you are out of cash, maxed out on your credit line and not paying off your credit cards, then you have accepted an unreasonable amount of risk in your business and are not in a position to access opportunities.
Phillip Rosebrook JR is a partner in Business Mentors and Restoration Training online. He is a 28 year veteran of the restoration industry and helps restoration companies create and implement a vision for their business. He can be reached at Phillip@businessmentors.net