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Selling Your Services |
National Sweeping Service Vendors:
by Ranger Kidwell-Ross
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For this story, we got the inside scoop from Bill Burr, Jr., who is uniquely positioned as head of both a sweeping company, Venco Western, Inc., and a national vendor management firm, DayStarUSA. The only national vendor we could find that has its roots in sweeping, DayStarUSA is primarily a self-performance company. However, it does utilize some outside sweeping companies, and contracts with Venco Western for some of its accounts.
In this candid interview, Bill Burr recounts his own experience in this business, and outlines what to watch out for when working with national management companies.
WORLD SWEEPER: What has your experience been in servicing accounts for national management companies through your sweeping company, Venco Western?
Bill Burr: In a nutshell, for a variety of reasons we'll discuss, we no longer accept work from any of those types of firms except from our sister company, DayStarUSA. I agreed to this interview because the story needs to be told so that the small sweeping contractors out there -- who are primarily the ones who are attracted to these types of contracts -- can be protected. They're the ones who have a hard time saying "no" when they're offered a chance to get five or six new accounts, even though it's at a low price per sweep and they may be stretched out for payments.
It's very important that contractors realize who they are working for, and to make certain the company has the credibility and background for following through on their contractual obligations. Unfortunately, a number of the national vendors aren't willing to give out the information needed to complete any kind of due diligence process in that regard. Often, they won't even reveal who the different parties are that they have done business with. They are certainly not going to disclose who their contact is with the customer that the sweeping company will be servicing. The national management company maintains direct contact with the customer and the sweeping contractor is out of the loop. Why? Because the actual customer doesn't want any interaction with the local sweeping companies.
WORLD SWEEPER: Why are the national vendors attractive to the national chain stores?
Bill Burr: National retailers go with a single service vendor to consolidate service and vendor base, reduce internal overhead costs, increase communication and control costs in the field. Especially with public companies, there is constant pressure to perform economically. That has created pressure to consolidate activities to get rid of any redundancy and to centralize the control of all possible activities. Many retailers have gone to the national vendor system only because their backs are against the wall. Their payables department is no longer willing to deal with invoices from thousands of vendors.
Unfortunately, what we're finding is that a lot of the national retailers have been burned by national outsource companies, so it is really a mixed bag out there in the marketplace today. A number of chains have decided they do not want to use national vendors because of previous negative experience. We encounter that problem in our sales and marketing efforts for DayStarUSA all the time, and only overcome it because we are predominantly a self-performing national vendor and we don't do much subcontract work.
There have been service areas where we have needed to hire sweeping contractors and where we have basically been unable to find anyone interested because they've had such bad experiences -- not gotten paid and so forth -- with one of the national outsource companies. We had to offer incentives for them to sign contracts with us, all in an attempt to get them to understand that we are a reputable firm and that they will get paid.
WORLD SWEEPER: How do the national vendors save money, other than by squeezing contractors for price? They have to charge for their time and the money has to come from somewhere.
Bill Burr: Well, that's very true. From a national service provider's point of view, it's all a matter of economies of scale. Once you get up into the servicing of properties in the thousands, it becomes more viable economically. Although it takes a national vendor more time and resources to sell a national account than it would to go down to the local corner and sell the shopping center, when you sell a national chain it's much more lucrative. They might have an acquisition cost of $100,000 to get an account, but they might generate $2 million in revenue over the course of a year vs. $75,000 per annum that might be generated from sweeping a local company.
The initial cost to establish the infrastructure needed for servicing companies on a national basis is high, therefore volume is important. DayStarUSA is three years into being a national service provider. Over 80% of the work we do across the country right now is self-performed. For a little less than 20% of it we look for service partners.
However, because we have been in sweeping for a very long time, we look for service partners that have been at it for quite awhile, as well. Primarily, in the sweeping arena we are using members of the sweeping association, naPSa. For the most part, these are companies that have proven to have a business model that works for them. Typically, they are also a little more sophisticated.
When you get down to it, most of your customers want one basic thing, and that's for you to show up as agreed and then give them value for their dollar. It is no different on a national basis. They want to make sure that you are there and that you are providing the services you contracted to perform. And, you are only as good as last week's service. So, to that extent, our DayStarUSA model provides for paying a fair, competitive price for services provided. Our mandate is to provide good performance wherever we operate, not necessarily the lowest price in the marketplace.
The big difference, as I see it, is that DayStarUSA is primarily self-performing, and relies on outsource sweeping contractors for only about a fifth of our business. That's very unusual for this type of company. The two biggest players right now in the American sweeping marketplace are U.S. Maintenance and Dentco, but as far as I know neither of them self-perform any of their work. They are just brokerage companies.
WORLD SWEEPER: What should a sweeping contractor insist on when approached by one of these types of firms?
Bill Burr: First, they should obtain other vendor references so they can check to determine viability of the service provider. Preferably, these should be vendor references both in the sweeping industry and in the same region of the country. I would ask for 3 to 5 references and recommend calling all of them. By doing that, a pattern should emerge of what the average payment terms have been, what their history with the company is and how they've been treated.
It is a pretty common practice among some of the big nationals to get you over-extended and then use your money. That's why you won't find very many large regional sweeping contractors that are working for these brokerage firms, because the modus operandi of the ones with questionable business practices is to take advantage of their vendors in any way they can. It seems like almost everybody has a story out there.
One of the typical scenarios we've heard over and over is that the contractors got paid reasonably well for the first couple of months before payments slowed down. Next, they extend the contractor to the point where they are just hanging out there by using their money for 120 days. They string the contractor along until at some point they decide they won't take it any more and quit sweeping. But, because of the nature of the business, there are five other contractors waiting in the wings. That's why you need to make sure there is great contract language relative to the payment terms. Make sure the payment terms are written into the contract language, not given verbally. Do the same with the cancellation language in the contract.
When you go out to buy a new sweeper to service your new contracts, keep in mind that most of the national service agreements are month-to-month, even if you sign a multi-year contract. That's because they have 30-day cancellation language. If that's how they do business, there's nothing to keep them from finding someone else at a lower price during the term of your contract and replacing you with only the 30-day notice. A number of them have a real short-term business philosophy. Although not all are like that, my guesstimate is that probably 40%-50% of the outsourcing companies fall into that category.
Another thing most contractors don't take into consideration is that most of the national brokerage firms have in place some sort of time-consuming service accountability and validation system. They require verification that services were performed in order for your invoices to be processed. Some will accept an email or faxed note from your customer, but many require you to get an in-person signature on a weekly basis.
As a small service provider, it's really important to understand what that system is and how much it will cost you to provide. Plus, you need to have ammunition to go back to the ultimate customer in the event you end up with some kind of a problem. On the one hand, there needs to be a validation system in place, so you can prove you've been both showing up as scheduled and doing good work. On the other side of it, keep in mind that if you have to go to each location manager and get them to sign something each week it can be a difficult and expensive process to carry out. You need to be ready for that cost.
A sweeping contractor also needs to be cautious when any of these entities offer some really significant account expansion, or geographically exclusive areas for them to provide services. That is a pretty common tactic to lure contractors into signing a contract, so they will over-extend themselves. Then, they can be squeezed later because the outsource portion of their business is so important for them to keep. In some cases the sweeping contractor will buy new sweepers, or expend money on other capital equipment requirements, in order to extend their scope of service to a somewhat distant geographic region. I caution to be really leery of that type of a business expansion.
That's not to say you should 'just say no' to servicing contracts from the large outsource providers. As I said initially, for a variety of reasons it appears these types of arrangements will become more and more a part of the sweeping industry. However, be sure to conduct a high level of due diligence, and keep in mind that if you accept work at below your true cost of service then there's no amount of volume that will turn it into a money-making situation.
Bill Burr may be reached via email sent to bburr@daystar-usa.com.
This article is reprinted from American Sweeper magazine, Volume 9 Number 1, 2003.
 © 2005 - 2012
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