Above water

There are clear business advantages to running a niche operation. You hone a client base that demands, and will pay for, your services. You focus skill building on an area of expertise and become a subject-matter expert. You target marketing and focus on getting the business you want.

But there are also pitfalls when the going gets tough and customers stop spending on irrigation systems. Many companies diversify to extend or deepen their reach in the market. They run with the idea that comprehensive coverage will prevent customers from leaving their firm to find services elsewhere.

There’s truth to that.

But Aaron Katerberg never considered branching out beyond his company’s longtime core business: irrigation, and irrigation only. That said, Grapids Irrigation, located in Grand Rapids, Mich., has overhauled its business model, pumped up cash flow with smart payment systems, expanded into drainage tiles and formed a peer group to keep the profitable ideas flowing.

Some things stay the same – an irrigation focus – but the daily operations of the business have changed significantly to secure the sustainability of the 50-year-old firm. “One of my grandfather’s advertisements was, ‘irrigation is not a sideline,’” Katerberg says. With modern business model changes, that saying is still very much the case at Grapids.
 

Switching the mix.

To stay alive and busy the last 10 years, Grapids Irrigation completely flip-flopped its installation and service mix. Historically, the firm had been mostly installation. Today, the split is 25 percent installation and 75 percent service.

The problem with installation is that commercial work goes to the lowest bidder, Katerberg says. He saw more opportunity in service, because of its recurring revenue – and also, there is a “keeping up” factor that will drive even clients who feel financially crunched to take care of their irrigation systems.

“My grandpa would always say that people with money will always still need you,” Katerberg says. “There will always still be work from the top end of your clientele, and even if those higher end customers do not have the money, they don’t want to be embarrassed in their neighborhoods with a brown lawn.”

So Katerberg began building the service division of the business—a wise decision, he said, considering the financial storm going on in their immediate area, and the country. “With the economic dump in Michigan on the auto industry in 2003, and the economic dump of the whole country in 2008, we have had to reform our business model almost from scratch,” he says simply. The commercial installation business simply wasn’t going to be there like it was.

This service shift was a big move for the Katerberg family. Katerberg began the efforts in earnest when he took over as service manager eight years ago. Today, he serves as president and is buying out the now third-generation business from his father, Will. Katerberg’s grandfather, Ev, a plumber by trade, founded the company in 1957.

In spite of the economic climate, the family still wanted the business to continue with its irrigation-only service model – that is their passion– but increasing service business would improve cash flow, which quite frankly, stopped flowing during the company’s five-month off-season.

But in order to boost service, Grapids needed to build internal resources, including bringing on (and training) employees to do the work; and developing systems to maintain a high level of customer service. “We are roughly triple the size we were 10 years ago, and our marketing efforts and the employees we hire for service are very different, as well,” Katerberg says.

As for employees, irrigation construction takes “a bull” of a worker who can focus on production; while the service side calls for a self-starter who excels at relationship building, Katerberg says.

“Service is very detail-oriented, and you are dealing with customers very intently,” he says. “Sometimes you need to hold that older customer's hand as you adjust the (irrigation) head just the way she wants it – and you need to juggle paperwork,” he says, noting that the typical service technician does 20 times the paperwork of an installation foreman.

“A foreman interacts with potentially one customer in two or three days or longer on a commercial job,” Katerberg says. “A service technicians is often interacting with somewhere between 15 to 20 customers per day.”

Most employees do not jump back and forth between departments. In fact, only two employees have done that in Katerberg’s 20-some years in the business. Recruiting for service is focused on finding individuals who can work independently on the road, manage customer relationships and handle administrative duties, such as billing and payment (Grapids recently implemented COD).

As for systems, Katerberg says the company has always focused on fast response to customer calls. This is integral to secure new and repeat service business. “We make sure that we follow up with our customers, and from my experience, it can be hard to get a hold of (other companies) on the phone,” he says.
 

Cuing up cash flow.

Switching to service was one gradual decade-long process, but implementing systems to improve cash flow was critical to Grapids’ continued growth during the recession.

“Cash flow kills more businesses than P&Ls do,” Katerberg says.

Trying to spread out the money during the off-season was stressing the firm – it’s a challenge for any seasonal business. Grapids stoked its cash flow, and ironed out its frantic early-spring scheduling rush, by offering a 10-percent discount to clients who prepay for service. Today, about 70 percent of start-up service customers sign a prepay contract.

Katerberg introduces the program to clients each year by mailing them a formal letter the first of February. A commitment to prepay is due by March 1. The selling point for customers is the discount, plus the convenience of knowing their irrigation service needs are handled for the rest of the year. For Grapids, the business flow improves because Katerberg can plan routes well in advance.

Another move to “significantly” help cash flow, Katerberg says, has been implementing cash-on-delivery (COD). Grapids began offering the system in early 2014. Technicians are responsible for completing the COD transaction.

“Technicians can take checks or credit cards in the field,” he says. “They are doing their own pricing, so they quote the customer like a mechanic would, and by the end of the job, they take that money and it goes directly into our account instead of us waiting for the collection period, which is 40 days on average.”

Some technicians are better at securing COD than others; it’s a system that Katerberg and managers will continue to emphasize to field personnel because it drastically reduces receivables.

These steps to improve cash flow have allowed Grapids to use winter months to sharpen the business and conduct training. “We’d rather spend the off season making our service better instead of trying to pick up a few bucks here and there plowing, which is a very competitive business in our market,” Katerberg says.

With a move toward more service, and by putting systems in place to support the company’s financials, Grapids has maintained growth during the recession. The company posted about $1.7 million in revenues last year.

What Katerberg is most excited about is continuing on this growth mode, and continuing to explore opportunities that align with the company’s irrigation mission. One such service is installing drain tiles. Grapids can use its existing equipment for the work.

“The beneficial thing is when it rains, no one cares about the sprinkler company, but everyone cares about the drainage company,” he says. “The service has been a good balance for us.” The company has gained drainage tile business from existing customers and expanded its client base, too.

“We have made significant leaps and bounds as far as financials, but that’s not what is most exciting,” Katerberg says of growing a talented team. “Seeing our people become successful excites me far more.”