How adding services (sometimes) adds value to your company
Landscapers have plenty of service options because so much under the sun can be described as landscape work. Services run the gamut from cutting grass to building water features to installing green roofs to decorating homes and businesses for Christmas. Yet offering many different landscape services is only a good business model when the offered services truly fit a company and a market. The trick is to recognize a fit.
“Diversification of services is not a bad idea, and sometimes specializing in a service can be a good idea,” says Peter Haakon, who operated two profitable lawn care companies in the Washington, D.C., metro area before founding Lawn Business Consultants. Successful diversification, he adds, “is typically dependent on if there is enough demand and if it will complement existing services. A lawn or landscape company should only expand its services if it adds value to both the customer and company.”
Haakon’s values formula didn’t add up for Freeburg, Ill., landscape company Paradise Lawns when it considered doing snow removal. Paradise Lawns serves urban and rural areas in five counties across the Mississippi River from St. Louis. Had the company offered snow management during the past winter, it would have cleaned up, of course. But it didn’t offer the service and Dena Kreher, company president, says there is a good reason why: its mid-south location.
“We have looked into snow removal,” she says, “and if we had had it this year, we’d have done great. But a year or two ago, some landscape companies we know of who do snow removal in Illinois and Missouri took a hit when it didn’t snow. Geographically, it is not a service that we feel we can offer.” In other words, Mother Nature can’t reliably deliver enough snow in southern Illinois to keep snow pushers busy.
That calculated decision demonstrates how Kreher and her husband Mike evaluate each service offered by Paradise Lawns. When they bought the company in 2009, about a quarter of its business volume was lawn mowing. The couple’s intention was to increase the percentage of the mowing business. Instead, after scrutinizing the profitability of cutting grass, they got out of residential lawn mowing and focused more intently on the commercial market.
Serving a changing market
Today, Paradise Lawns offers 20 services under the banners of lawn care (fertilization and weed control), tree and shrub care, pest control (moles beware) and “outdoor services.” The latter incorporates such functions as soil analysis and treatment. The company adds a service only if market trends and environmental circumstances warrant it, a systematic approach that paid off when the emerald ash borer invaded southern Illinois.
Home Maintenance – 13%
Hardscape Construction – 9%
Arbor Services – 8%
Pest Removal – 18%
Lawn Care – 30%
The emerald ash borer is a native of Russia and Asia and can kill an ash tree in two years. It first appeared in the United States about a decade ago, and the Krehers tracked its destructive advance for four years. When the migrating pest reached their area in 2013, Paradise Lawns was ready: It offered its customers treatments with a herbicide that is carried upward through the tree’s vascular system to where beetles are boring.
“We started by educating our folks about the beetle,” Kreher says of the ash borer control service. “That’s where we always start when offering a new service. We believe that is our first line of defense, talking to customers, giving them our recommendations; in this case, telling them how to identify the ash borer.” In other words, the Krehers primed the market for their new service before introducing it.
Education is ongoing at Paradise Lawns, internally and externally, with the company website (http://www.paradise-lawns.com) being a resource for customers researching on their own. “Too often, companies who want to promote a service will offer discounts,” says Kreher. “We take a different approach, the education approach.”
Paradise Lawns will introduce another service this fiscal year, though the Krehers are not yet saying what it is. The introduction follows two seasons of experimentation and conducting of “a lot” of research, says Mike. “Last year, we tested it on our own lawn and, free of charge, on the lawns of a couple of customers. We were happy with the results internally, so now we will see what the market thinks about it.”
Dena Kreher of Paradise Lawns, Freeburg, Ill., says that Paradise Lawns offers about 20 lawn-related services but is hesitant to get into snow removal.
Photos courtesy of Paradise Lawns.
The new service is apt to succeed, because that’s the company’s track record – even in tough times. Kreher says she is “extremely excited” by the prospect of an improving economy because in the five years of their business experience, a slow economy is all they have known. Yet, during the period, the company, which has seven employees besides the president, has experienced a 15 to 20 percent growth rate year over year. Mike attributes that to offering the right mix of services and good business practices. “It’s all about our efficiency.”
Know the costs
Consultant Peter Haakon wouldn’t argue with the Kreher’s step-by-step approach. He says the biggest risk a landscaper takes in offering new services is miscalculating what a service actually costs.
“When you offer new services, you create new hurdles because of break-even points. In simple terms, you have to look at your fixed costs and, more importantly, your variable cost to determine the true return on investment by knowing exactly your cost of operations,” he says. “The part of the equation that’s tough is remembering there’s a cost to everything in business even when it’s not working.”
Haakon recommends that landscapers be “laser-focused” on their areas of expertise. “Many companies from start-ups to midsized have not defined themselves and take on jobs they really should turn down.”
Kevin Ethington’s business focus was years developing. In 1987, he started a landscaping enterprise with his father. For the first couple of years, cutting grass was the only service they offered and, though profitable, Ethington didn’t much enjoy the ride. “For one thing, I was getting tired of doing just one thing,” he says of mower seat time. “It was a no-brainer.”
Because Ethington got personal satisfaction from construction, when customers asked him to take on small building projects, he willingly “dabbled” at tasks and learned the landscaping side of grounds maintenance. A cousin with landscape experience then took him under his wing and Ethington became more and more proficient at installing sprinkler systems and constructing small landscape features.
Developing a lawn application business is a proven cash flow generator because it provides recurring revenue. Beyond that it adds to the overall value of your company, making it more attractive to potential buyers.
One step at a time
His trial-and-error learning experience was not according to any best practices textbook. It was more of a case of plunging in and mastering a particular service before moving on to another one. “Every company is different. Some people would rather stay in one specific area of landscape work,” Ethington says. “What we have done has worked real well for us.”
Along the way, he acquired landscaping and general contracting licenses and 15 employees. Today, All Seasons Landscaping, Inc. offers more than 20 different but related services out of its North Salt Lake, Utah, headquarters. The work is categorized seven ways: landscaping, sprinkler systems, yard work, lawn maintenance, fertilizer and weed control, water features, and, yes, snow removal. Unlike mid-Illinois, northern Utah can expect snow every winter.
But even the snow service has evolved from the original offering. “We don’t use the plows on our trucks any more. It was banging them up too much and even in the snowiest years it was feast or famine,” he says. All Seasons just blows snow from residential properties now and Ethington mostly uses the winter season to prepare for the rush of business during the following three seasons.
Ethington has experienced something of an odyssey in respect to cutting grass. When he became “burned out” on mowing, he hired it out and concentrated on other services. He finally dropped the service altogether in 2008, selling the franchise for “a good chunk of money.”
Mow time again
However, that wasn’t the end of the story: Four years later, Ethington returned to his roots and reacquired his former mowing business at a reduced price. The operator had lost customers and Ethington is in the process of rebuilding that customer base.
All Seasons Landscaping prides itself on being a “one-stop shop” with wide-ranging services. “That’s what customers love about us,” Ethington says, adding that he believes the many moving pieces of the company allow it to better absorb economic shocks. “I can easily tell which part is moving and which isn’t. When something is moving, I put more guys in that area.”
Industry Consultant Ken Thomas, a former owner of three of Atlanta’s most successful landscape companies and principal of Envisor Consulting, says “diversity is good if a company understands what it is good at and diversifies strategically. You can’t be all things to all people. If you are fairly successful at a particular part of a business and have refined that part, then if you have margins, you can look to diversification to complement that service.”
Thomas adds that expanding services is a healthy response to landscaper success, but so is dropping services. “A lot of landscapers equate top-line dollars with success when they should be measuring bottom-line dollars. Sometimes they take on a new service just because a customer asked them to. I would suggest that a landscaper never grow just to grow. Rather, preserve your core business, and stimulate and grow it instead.”
Thomas also warns company owners not to fall into a routine of spending more time doing landscape work than actually running the business. “A good landscape business starts with good people. So many owners have gotten as far as they can go with a limited team. They just work harder for more success, but at some point that doesn’t work anymore. An owner has to replicate himself and take responsibilities off his shoulders. Recruiting and developing a company team is the key.”
Giles Lambertson is a researcher and reporter who has covered small business and the equipment it uses to serve its customers for more than 30 years. Contact him at [email protected].