“Back in the day”, say the 1970’s and early 1980’s, was a time when Testing Adjusting & Balancing (TAB) was considered a high technology, high skill activity and the answer to poor HVAC outcomes. During this period it was possible to make money in TAB and invest in training, good times!
Fast forward ~ 35 years and TAB is commoditized to the point where:
- Despite shortages of skilled technicians TAB is fully commoditized.
- Difficult to recruit good people as TAB is little understood, considered “blue collar”, has a ceiling on earning potential for field operatives and is unionized in some areas.
- Few people can tell a good technician from a fraud.
- There are almost zero consequences to general and MEP contractors for doing a bad TAB job.
- Desk bound or drive by “paper jockeys” who produce great looking reports but do not actually do hands on work, proliferate due to items 3 & 4 above.
- Low profits lead to some TAB firms cutting corners, cutting training and “hiring down”, it becomes a race to the bottom.
- High integrity, professional TAB firms suffer and cowboys flourish.
The reality is that TAB firms are market “price takers” not “price setters”. They have zero pricing power. That is the way it is and will stay, until there are real consequences for bad work.
What to do if you are a high integrity, professional TAB firm? I see two options:
- Sell your firm and do something more profitable – I have done this a few times and can recommend it.
- Utilize a lean business model.
Professional services firms, I include TAB firms in this category as they sell expertise, knowledge and time, are a bit like legal firms. Stay with me here.
TAB and legal firms both sell “ niche” knowledge and their key inputs and costs are highly trained people. However the comparison ends when you look at pricing power. Have you ever seen a legal firm competitively bid for work? In my tin foil hat world, I think there has been a secret legal industry “Bilderberg Group” (https://en.wikipedia.org/wiki/Bilderberg_Group) meeting where they all agreed not to race to the bottom and only bill hourly.
Given the above, to make money, a “lean” TAB business model is required based on five principles:
- Work for the best
- Measure everything
- One Touch work
- Hire the best
- Use the best
1 – Work for the Best
Stop being people pleasers, only work for people that actually pay you. Apply the 80/20 rule, work for the clients that produce 80% of your profits and ditch the ones that consistently pay late and mess with you. You know who they are, they cut your final account payment but will “make it up on the next project”.
My personal rule is to get as close to the money as possible i.e. work for end users or as high up the contractural chain as much as possible. A small profitable business is better than a large unprofitable business.
2 – Measure Everything
To make good decisions and “manage” you need high quality, near or real time information. TAB firms should measure and analyze monthly & yearly:
- Total number of quotations & win rate. Identify people who are using you as a free estimating service but not giving you any projects and just stop.
- Average “debtor days” i.e. how long it takes on average to get paid. Fire clients who are consistantly over 120 days.
- Future pipeline i.e how much signed work on the books going forwards. A good KPI is 6 months or more.
- Time & cost spent on every project. Use this to identify bad contractors and high-performance TAB staff.
- Staff turn over. High turnover signals bad management.
- Cost of goods sold (COGS), non-productive, fixed overheads and of course net profit.
- TAB firm owners should be paying themselves market rate salaries and the firm should be making at least a 10% net profit. If not, the risk reward ratios are off and you should sell and do something else.
3 – One Touch Work
Automate and use software for as many processes as possible to reduce overhead and field time. Writing on paper (site and office) then transposing to digital is double handling and needs to stop.
Why must TAB firms have physical offices? Why not utilize virtual offices with outsourced or automated office functions and field work managed by software combinations such as Slack, Skype, WhatsApp. I believe in 2017 a TAB firm can be run “virtually” with physical office space for occasional staff meetings hired on demand from co-working spaces.
4 – Hire the Best
There are two issues, world view and rewards system.
In my world view, a TAB business is a performance team effort not a family. A football team manager has to chose and reward the best performing players. If a favourite person instead of the best goal scorer is played, a win is unlikely. To make money you need to intentionally run a performance team and hire the best people.
IMHO, good people do not earn enough and average people earn too much. You are in control of how revenue is used, keep the total salary spend the same but widen the salary spread between great and average people. Reward performers and cut weak players early. This sends 2 important signals:
- Excellence is rewarded, reinforcing behaviour and attracting more “A” players
- Excellent people do not like being around poor performers. They need to see that poor performers are not rewarded. When we want to get better and learn we all want to be with the best possible mentors. Excellence leads to excellence.
5 – Use the Best
To make a real difference and therefore money, two things must be done:
- Ruthlessly research and invest in test instruments that enable speed via ease of use and automatic recording of test results therefore reducing time on site.
- Continually research and deploy or even develop software reporting solutions to ensure data is handled and reported once with no transposition from paper to MS excel to report.
I firmly believe that one day technology and the IOT will make TAB redundant. In the mean time, the future belongs to TAB firms that can evolve, run lean and role with it.
However, maybe there is another option. The TAB Godfathers can have a TAB “Bilderberg group” meeting and all agree to work like lawyers on hourly rates only. Anyone?
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Related posts & links:
#84 – TAB Certifications, Why they Matter ( https://www.linkedin.com/pulse/tab-certifications-why-matter-adam-muggleton/?trk=mp-reader-card )
#97 – +/- 10%? ( https://www.linkedin.com/pulse/10-adam-muggleton/?trk=mp-reader-card )