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Filling in With Smaller Jobs

In Alexandria, Va., and the surrounding suburbs of Washington, D.C., home prices have plunged at rates that rival those in the crashing “sand states” — Florida, California, Arizona, and Nevada — and the subprime lending fiasco has spawned record numbers of foreclosures. For Steve Shook, owner of Alexandria-based Rarco Contracting, the wake-up call came last winter.

“In October and November of 2007,” says Shook, “we just did not sign any contracts. And December was no better. I was scraping money from everywhere to try to cover bases.” After growing at least 25 percent a year since 1994, he says, “all of a sudden, we were shrinking. For the first month or two, I just got depressed. But then I realized that I had to be creative. You know, you have a choice: You’re either going to survive and get stronger, or you’re going to go out of business.”

So Shook decided to go after a new kind of job — small kitchen and bath remodels — and he replaced one salesman with a new one who focuses only on that. “Trying to train somebody to bid and sell large remodeling projects is very involved, but kitchens and baths is pretty straightforward. I figured I could teach somebody to do that pretty fast,” he says. “So I devised a training program, and hired this guy. Now I’ve got a training program in my operations manual, which is one good thing that has already come out of this stuff.”

The K&B division is filling a void for the company. “I wasn’t sure I would have enough work for all my teams. But now one team stays busy doing mostly kitchens and baths, or sometimes a porch or a deck.” The cash flow from these smaller jobs is small but steady, and so far it’s filled the gaps between larger projects. “It’s hard to get used to making draws of $5,000 when you’re used to draws of $20,000 or $30,000,” he says. “But still, it’s money coming in — things will start to get tight, and suddenly you’ve got a couple of small jobs to hold you till money from a big job comes in. It has definitely been a help.”

Shook also made some serious cuts on the cost side. “About a month and a half ago, I cut everybody’s salaries,” he says. “I didn’t cut the helpers’ pay — they don’t make that much to begin with, and it’s very expensive to live around here. But anybody making in the $20-an-hour range or more, up to and including me, we all took a 7 percent cut.” His employees were supportive, he says. “They read the papers. They understand what’s going on. I’m giving them a job.”

To stay competitive, Shook has also sharpened his estimating pencil. “We’ve always been very detailed in our estimates, but when the market’s hot and heavy, you can pad it a little bit. Right now, you have to be very precise, make sure that you’re covering yourself — but that you’re not fattening it in any way, because if you do, somebody else will get the job.”

John Abrams

South Mountain Co., West Tisbury, Mass.

Design-build and renewable energy

$8 million annual sales; 32 employees; 33 years in business

The Energy Future

John Abrams lives and works on Martha’s Vineyard, off the coast of Massachusetts, where he’s founder and president of South Mountain Co., an employee-owned enterprise. In November, says Abrams, the company’s 19 employee owners met to discuss “the unthinkable.”

“For 33 years, every single day, every employee of South Mountain has come to work and there was productive work to do,” he says. “So what happens if it comes to pass that we don’t have work for everybody?”

That time, if it ever comes, is still far off, Abrams says. “We have plenty of work to do, but our cushion is partly gone. In the past we’ve had as much as a three- or four-year backlog. Our volume is about $8 or $9 million, and a two-year backlog is normal. But like everyone else, we have experienced some postponements, and now we’re down to one year. So, what if there are more postponements?”

From the outset, says Abrams, it was clear that the owners rejected the idea of laying individuals off. Instead, they proposed and considered a range of alternatives. One idea was “rolling layoffs” — letting groups of people take turns staying home, as another company on the island has already started doing. “Another possibility would be across-the-board cuts in hours,” he says. “A third step would be graduated wage reductions: higher wage reductions for the highest-paid people, lower wage reductions for the low-paid people.”

With several viable components in the business — including a woodworking shop, a design studio, a renewable-energy division, three field carpentry crews, and an additional crew for small jobs — “we could carry for a very long time one of those crews not being busy,” says Abrams. “If it was two crews, we couldn’t carry it so long.”

The owners also looked at ways to keep workers busy even if they weren’t generating revenue. “You know, we are so busy all the time here that there are many things we want to do that we don’t get to do,” says Abrams. “So the other thing that came up is, ‘Let’s make opportunity out of this.’ We are in a position where we don’t have to make a profit, because nobody is living off that profit. So we can go for a while without making one. Let’s do some of the things we sometimes don’t get to do — such as training, or community service, or making products in our wood shop that maybe have not been ordered but will be useful later. But the commitment is to not lay anybody off.”

Meanwhile, Abrams sees his company’s future in home-performance contracting — or, as he terms it, “deep energy retrofits.” “There are 16,000 buildings on Martha’s Vineyard, all of which are going to need to be replaced, or heavily retrofitted, in a new energy regime,” he says. “In the next 10 years, for sure, that work will be important. So that is something we are planning for and cultivating.”

Steve Schau

Old to New Renovation & Construction, Donnellson, Iowa

Building and remodeling

$600,000 annual sales; 2 employees; 20 years in business