It seems like such a simple idea. One of those brilliantly simple business concepts, years down the line, when everyone will ask, "Why didn't I think of that?"
Don't know who to call when a pipe leaks? How about when the air conditioning goes out? Can't find a reliable painter? VenVest, a venture capital and holding company headquartered in downtown Sarasota, wants to be the solution to all those questions and more. Siesta Key's Jim Abrams, the CEO, wants VenVest's affiliates to be the one source you turn to when you need something for your home, not just here, but nationwide.
"It's a very fragmented industry," Abrams says of the home services marketplace. "They don't build up any brand recognition in the consumers' minds. The opportunity exists for someone to come in and stay."
If it sounds like a grand and elegantly uncomplicated plan, Abrams says it's far tougher to accomplish than you think.
Abrams and his partner John Young started down this track in 1999, with the ultimate goal of creating a publicly traded company that provides all the services a home owner may need. Now, five years later, they are getting close to breaking the $100 million in annual sales needed for a public offering on the New York Stock Exchange. Along the way, they have quietly become a major player in air conditioning, plumbing and electrical contracting by creating affinity groups-collections of independent contractors in those specialties-who, for a weekly membership fee, receive consulting services from VenVest professionals. To date, they've convinced 1,000-plus contractors spread throughout North America and Canada to join the fold. In return, VenVest helps these existing businesses grow and hopes to turn them into franchises. Once they're ripe and willing for takeover, VenVest will purchase them. This year, he's estimating he'll acquire about 12 clients for $60 to $80 million. "We want to be the Home Depot of home services," he says.
Abrams and Young now have embarked on the hard work of establishing brand recognition, based on their philosophy of providing guaranteed on-time service with trustworthy technicians.
"I have seen that most of the great companies that offered services offered a recognized name and a message, and they delivered," Abrams says. "If you get out with something the consumer wants, and you deliver, you can win the day."
Abrams has made a career out of building businesses either from scratch or from the depths of missed opportunities. His first success was with a Weight Watchers franchise in Michigan that he grew into the company's largest franchise, with operations in six states, Canada and Mexico. From there he moved to the Trane Company, eventually starting his own heating and air conditioning company called Air Experts in St. Louis. That's when Abrams started his model of growing his business and acquiring competitors.
John Young, who also worked at Trane in the 1980s, co-founded Fort Myers-based Service America in 1984, making it the first franchise company in the air conditioning industry. A marketing specialist, Young founded a consulting company in 1986 aimed at helping air conditioning contractors grow their businesses.
Together, the partners started Service Experts, Inc., based in Nashville, and concentrated on acquiring HVAC companies. Their NASDAQ IPO was $13 per share, eventually rising to $22 per share and a listing on the NYSE. It reached $32 a share by the end of 1997, and the partners each held more than 800,000 shares. Young and Abrams ceded control of the company to a former client, and Service Experts' value plummeted as they acquired more companies, and management got too cumbersome, Abrams says.
He retired to Siesta Key in 1997, but the eventual failures of Service Experts gnawed at him. The old partners got back together in 1998 to form VenVest, planning to make another run at a publicly traded home services consolidation company. This time, they studied successful service brands and made their vision long term. Abrams' plans to reach that $100 million mark in 2005, a public offering some time in the fall, and sales of $1 billion by 2010. Already, the combined sales of their 700 employees in 143 franchises are $241 million.
But why home services, which are not the sexiest businesses around to attract investors?
Abrams says it is because of the opportunities for growth, starting with HVAC and eventually moving into every aspect of the home. He says consumers don't have consistent, competent and trustworthy people to turn to for problems around the house.
"In most marketplaces, there's not a large player. If you ask the average person, they wouldn't be able to name an air conditioning contractor," Abrams says.
And contractors are starved for better business procedures, he asserts. Out of the 100,000 small independents out there, says Abrams, "only two percent make money, meaning profits."
The umbrella company of VenVest is built on four pillars: consulting services, Internet retailing, employee training and service companies. Each supports the others in building the home services giant Abrams and Young envision. In the consulting company, businesses that join the "affinity groups" for air conditioning, plumbing or electrical contracting pay for such products and services as software, business plans and payroll assistance. HVAC contractors, for example, pay $20,000 up front to access VenVest's consulting services and $210 a week thereafter. Technicians are trained through the New Millennium Academy, essentially a virtual school whose instructors travel to teach the latest techniques. BuyMax is the name of the online sales outlet that serves plumbing and HVAC contractors. It's a clever set up: BuyMax provides discounts on software and supplies, and rebates on equipment for members of the affinity groups and franchises. It's easy to see once members receive all these services, discounts and rebates, they become more loyal to-and dependent on-VenVest.
The fourth pillar consists of the actual service companies, both VenVest-owned and franchised: One Hour Air Conditioning and Heating, Benjamin Franklin The Punctual Plumber, and Mr. Sparky, an electrical contractor. The distinguishing feature of all their brands will be on-time service, with guarantees against tardiness by technicians. Abrams sees the industry eventually converting to a Web-based system whereby consumers can set their own appointments based on a service company's availability, right on their home computer.
The acquisition phase of the business plan started about two years ago, with VenVest buying franchisees, companies that are already members of the affinity groups and those that fit nicely into their model. Abrams says the existing staffs are at least as important as obtaining a customer base with each acquisition.
"What I'm after in acquisitions is personnel. I'm going to buy that company and get those technicians, which are hard to find in the industry," he says.
The partners decided to branch out from HVAC, their specialty, to counter the seasonality of the business. The fact that huge companies like The Home Depot and Sears are getting into home services convinced them that the entire industry is ripe for consolidation.
And with the planned IPO this fall, investors are beginning to watch VenVest. Investors want to make sure the new model is unique and proprietary, preventing copy cats from jumping into the business. Dominos, Block Buster Video and FedEx can talk about how tough the world of competitors is when you have an ingenious but simple idea that can be replicated.
Abrams is not worried about the ease of others stealing his model. "It took us five years to build up our groups and $2.5 million in capital," he says. "We're experts at what we do. We've been doing this for 30 years."
Although reticent to discuss the VenVest plan in detail, at least one analyst likes the business model. While others have taken home services consolidation companies public, investors generally have been burned, according to Greg Bortz of Lehman Brothers, a senior vice president responsible for investment banking practices for business and professional services companies.
"It's very different," Bortz says of the VenVest model. "In the past, similar businesses have focused on getting big quickly and have struggled with the integration part of the thing."
Under the VenVest plan, before acquiring a company, the VenVest people make sure their systems are already in place, either through a franchise or an affinity group membership. "Then the integration takes all of four seconds," Bortz says. "The businesses have kind of graduated up through the system. They're creating a pipeline for themselves. I think that this would be something that would resonate with investors."
In anticipation of the IPO, VenVest recruited A.J. Long to serve as chief financial officer. With 18 years of corporate finance and operations experience at General Dynamics, Sprint and Nextel, Long has executed a range of debt and equity transactions, raising billions of dollars for public and private companies.
VenVest certainly is planning for a long future in Sarasota. Its 23 administrative employees are currently housed in One Sarasota Tower, but Abrams and his staff will be moving into 32,000 square feet on the ninth floor of the highly visible Plaza at Five Points, now under construction at the corner of Main and Pineapple.
"We've done a good job of building a company quietly," Abrams says. "If we're successful, I foresee employing between three and four hundred people in Sarasota by 2010. I have a number of educated, highly paid people here now, because this is going to be a nationwide corporate headquarters. We're really impacting the community by the people we're moving into Sarasota."