Back Construction Co-owner and President Kyle Whalen, who also serves as the 2009 board president for the Home Builders Association of Lexington, sat down with Business Lexington's Tom Martin to discuss the state of the home remodeling industry in Central Kentucky. The following is a lightly edited version of the interview, hear the full interview by clicking on the podcast below.
Lexington, KY -
Common wisdom holds that, in a tight economy, people might be more inclined to remodel their existing home than to buy a new one. Is that true?
Well, the truth of the matter is that remodeling is not really counter-cyclical to new homes. It doesn't go up as far and doesn't come down as far, but it follows the exact same trends. On a national level, our business is definitely down. But more telling is the size of jobs. The big whole-house renovations aren't there;
the big new additions aren't there. We're still doing quite a few bathrooms; a lot of updating. But what's holding us right now is maintenance and repair work: our roofing division, our windows and doors.
Have you had to lay off people?
Oh, we've definitely cut back. We're probably 20 percent of what we were last year on personnel.
In this economic environment, any changes in the costs of doing business?
I think that's what everyone seems to be thinking out there, and we see some cost savings on certain materials, not all of them. Our costs of labor have not gone down. Our health insurance is still the same or more. Our insurance, workers' comp and general liability, that's still the same. To get good, talented people, it still costs you to get them and it still costs you to train them, and those are important items. What I think we're seeing on every level - national, state or local - is that people are cutting their margins. It's the profit that's coming out of it. It's not the cost as much as the profit. We've already, in the last 6 to 8 months, cut whatever fat we have in our business. To maintain the same kind of business, the quality, to train our people, to keep morale up, you have to spend some money if you're building a business, and the margins are what suffer now.
Where are you trimming costs?
Ö We're doing more marketing than we ever have, and I think that's really, really important now. I think there are a lot of other people that are doing less, but if I looked at just our business, I think that we're doing a lot of other things that we should have already been doing. I've had this discussion with a lot of people in our industry: What people do in a tough economy is all the things that they should have been doing in a good economy. We should have been calling our past clients. We should have been marketing. We should have been watching our marketing to make sure that it's efficient. We should have been following up with clients, communicating with them on a daily basis in all levels of the company, and watching costs - everything you should have been doing in a good business climate. Our industry isn't alone, but we were lazy in certain aspects of it.
As part of your role of leadership of the Home Builders Association, are you sharing that observation?
Remodeling really is an emerging industry, predicted to pass new home building in total volume in the next five years. But what you're hearing is the old home builders stating, "We've got to have this recession." They are used to the cyclical nature of the industry, and it's a weeding out process. The old builders are very attuned to what's going on and they are poised right now to take market share. That's what you do in this type of economy. That would be our goal for our business, and it should be the goal of most every business regardless of industry.
You mentioned that marketing plays an important role in surviving an economic downturn. Is there anything else that's important right now?
Maintaining the talent that you have ... and gaining new talent. Increasing your level of talent - that would be very, very important in this time. And then also partnering with like-minded businesses that are non-competing but are complementary to you. That's real important.
Has retaining talent been especially tough at a time when your margin is shrinking and covering payroll is a challenge?
...we've been on the forefront of this because we've offered health insurance long before anybody else in this industry. To have our own workforce is unusual in our industry. We like to have control, we like to have our in-house labor. ... We have 30 employees, and well over half have a college education.
We hear a lot about green technologies. What sort of technology are you beginning to embrace?
As many as we can embrace, because this is a billion dollar industry arising. And the National Association of Homebuilders has their Green Program. Myself and my partner (Rob Hundley), we're both certified Green Professionals through the National Association of Homebuilders. The Kentucky Homebuilders Association has a Green Program. Lexington in the last two years has built over 500 Energy Star homes, which is just great - unbelievable. But I think a lot of people misunderstand what "green" is. I think the number one thing that people want when it comes to "green" is energy efficiency. And it's all about your tax credits. I mean, if you went to the home show, you saw banners everywhere - get your tax credit, get your tax credit - whether it be windows, whether it be a high-efficiency furnace. That's what people are looking for. I think a few very special clients see the whole picture when it comes to sustainable. They see products that are sustainable: cork flooring, bamboo, those types of things, (and) how local it was. We spoke of local before, and local is very, very important when it comes to green.
Locally produced?
Locally produced. I think it's within a seven-hour radius to get points both for LEEDs and for the Homebuilders Association Green Points.
To be LEED Certified?
To be LEED Certified. To get points. You have to be within seven hours from wherever it was manufactured. That's a big deal, but it's very attainable in Lexington, believe it or not. We're so centrally located.
What's your perspective on how your industry is going to look coming out of this economic downturn, as things begin to recover? Any opportunities stand out in your mind?
The opportunity coming out of this is to gain that market share. I think it's also an opportunity to vertically integrate, offer more products and have a bigger line for people.
What are your thoughts about growth? It seems to work both ways: If you don't grow when you should, that can be a downfall; if you do, growing too fast can also be a downfall.
I think that's really true, but a small business that doesn't have a component of growth in its plans is doing itself a disservice. Not only for the owners or the risk takers but also for the employees, because one of the things for keeping good talent these days is to have growth potential for an individual who's not an owner. If you can't do that, then you're doomed for failure. You'll be doing it by yourself, and with today's age of technology and scale, you can't do it. You cannot do it by yourself; it's too complicated.