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How to turn a no-growth roofing business into an Inc. 500 company
Here, presented for the first time anywhere, is Tom Tjelmeland's foolproof fast-growth strategy: enter a mundane, low-margin industry, situate your company in the middle of nowhere, and fall through a skylight every now and then. Follow those steps, and you've virtually reserved yourself a spot on the Inc. 500 -- and a permanent pin in your ankle.
Now let's give the strategy a label: dumb luck.
Indeed, what else could account for T&K Roofing Co.'s ranking as #483? It certainly didn't get there by investing heavily in R&D or discovering a new segment of the market. Buy a used van, grab a beat-up ladder, and you, too, can be a commercial roofer. The most common tools of the trade practically date back to the days when people scrawled messages on cave walls: a pair of scissors and a screwdriver.
Well, then, did some rising tide lift this little raft of a company, boosting revenues over a five-year period more than 700%? The most obvious explanations seem to fall short. A building boom, for instance, might have fueled the company's growth -- but Ely, Iowa, and environs could hardly be described as a metropolis, bustling or otherwise. And it isn't as if T&K has the market all to its lonesome; one of the country's 20 biggest roofing contractors lives practically in its backyard. Even Tjelmeland (pronounced Chell-ma-land), who founded the company on April Fools' Day of 1962, seems at a loss to explain the phenomenon. "I figure I'm a pretty ordinary guy," he says.
But step inside the offices of T&K, named after Tom and his wife, Karen, who is the accounting manager, and you begin to suspect that ordinariness lies in the eye of the beholder. It sounds subtler than it is. Instead of dripping with -- and reeking of -- tar, T&K's roofers wear clean and crisp uniforms; out back sit the company's white trucks, perfectly aligned and surprisingly shiny; personal computers hum away atop most desks. "I have only a high school education," says Tjelmeland, whose round face is bordered by Abe Lincoln-style whiskers, "so I've had to pick up where I can just to survive."
Changes at T&K Roofing, he claims, haven't been inspired by the works of such management gurus as Peter Drucker or Tom Peters -- though they very well could have been. Tjelmeland has little time for study: he's simply trying to stay ahead of more and more competitors and to satisfy increasingly demanding customers. Not so long ago a journeyman could spend $4,000 on an ad in the Yellow Pages and count on the work coming in steadily. No more. Once the domain of tradesmen, roofing has become a complex and unforgiving business: let your marketing expenses, labor costs, or collections slip, and you will take a fatal fall. "If we did business the way we used to," says Tjelmeland, "we'd just be subject to the odds."
Like so many Inc. 500 companies, T&K plans to boost those odds not by becoming the next Polaroid or Xerox but by striving to be better in as many ways as possible. T&K and others like it focus on mastering the learning curve of execution.
That curve rises ever steeper. Leaks, once the bane of every roofer's life, are the least of Tjelmeland's worries. His ability to stay in business hinges on coming up with inventive responses to a host of crushing pressures: aggressive competitors, increased computerization, the need for marketing. As construction drops off and companies become more timid about expanding, he faces an even tighter squeeze. "The realities of this business have changed," says the 49-year-old. His competitors -- the ones who are still around -- have wised up as well. To attract customers, it takes something more than a fair price or even a quality job. T&K's growth relies on the creativity and imagination Tjelmeland and his managers bring to it.
"What we're doing is a risk and a gamble," says Scott Appleget, marketing director. "But to us, the roofing business was a lump of clay waiting to be molded."* * *
One of these days, I'm going to ditch this SOB boss of mine and set off on my own.
Such has been the vision -- if you can call it that -- of many a roofing entrepreneur. Tjelmeland, though, "wanted to make the company big enough so I wouldn't have to go out on those roofs," he says. He achieved that goal after just five years. Because Tjelmeland focused on more lucrative commercial and industrial jobs, rather than residential work, his rise owed much to a scarcity of worthy competitors. By setting slightly higher quality standards, he attracted the kind of loyal customers who didn't even want to see a quote. Tjelmeland gladly obliged, taking away aftertax profits of as much as 15% on sales that soon reached $400,000 a year. His marketing costs consisted of paying his phone bill so that customers could get through.
The business practically ran itself -- or at least it might have, had Tjelmeland been the type to sit back. But he was constantly going to seminars and listening to speeches, picking up whatever ideas he could and trying to figure out how to apply them to the business. It wasn't easy. Often roofing seemed almost oppressively simple. The crews went out; the roofs went on; the bills got paid. It seemed the company wasn't big enough for all his sophisticated, if scattered, notions.
Restless, he directed his interests into other companies. In 1977, after becoming among the first to buy a microcomputer in neighboring Cedar Rapids, Iowa, he grew enamored of the flawless monthly statements he could produce. In fact, Tjelmeland was so taken with them that he decided to start a consulting business to help other small businesses set up systems to control inventory, calculate payroll, and monitor accounts receivable, among other functions. Data Management Inc. employed four people when it debuted in the summer of 1982, but by the time it was up and running, accounting firms and consultants had discovered the same niche. Eventually Tjelmeland sold his customer list for about $10,000, recouping roughly 25% of what he had spent on the two-year venture.
His next attempt, General Products Systems, had an equally short life. Looking to squeeze more revenues from his core business, Tjelmeland added a division that would sell a line of proprietary roofing materials. But selling a tangible product, he found, bore little resemblance to peddling a service. "How am I supposed to distinguish myself?" he once asked his accountant. "Hmmm," came the reply, "ever done any advertising?" Almost immediately he went out and plunked down $12,000 to lease a billboard above the Cedar Rapids police station. In coming up with the uncluttered design -- which touted both the new division and T&K -- he consulted with several friends, among them Scott Appleget.
Appleget had gone to high school with Kurt, the oldest of Tjelmeland's three children. Now he was about to graduate from the University of Northern Iowa, where he had studied public relations and marketing. What are your plans? Tjelmeland asked. Appleget wasn't sure. How about helping me get this thing off the ground? Appleget was soon designing brochures and writing PR copy.
Tjelmeland's preoccupation with the roofing products was coming at the expense of his installation business. He wasn't out selling jobs as much as he had been. His beloved monthly statements revealed that volume was dropping. Since the early 1980s revenues had flapped as wildly as scaffolding in a gale. Down to $700,000, up to $1 million, back down to $800,000. By 1985 sales had shriveled to less than $500,000. Worse, "there was a little bit of red ink," he admits. The billboard brought in business, but Tjelmeland also heard some disturbing comments. "Hey," someone would say, nudging him, "until I saw your billboard, I thought you guys were out of business."
The company's deterioration had less to do with Tjelmeland's realization that he was spreading his management time too thin than with changes in the industry. While he was tinkering distractedly, his business was losing its footing.
Understanding the transformation at hand meant going back to the mid-1970s, during what may soon be known as the First Energy Crisis. To keep heat inside, companies stuffed their buildings with insulation, exposing their roofs to harsh temperature shocks. The then-popular built-up roofs (BURs) consisted of three to five plies, a gooey layer cake of asphalt and roofing felts. Inflexible, the roofs began to suffer thermal fractures, causing leaks. As interest rates soared to withering heights in the early 1980s, manufacturers sought cheaper, more reliable alternatives.
Single-ply rubber roofs answered the call. Aside from their recession-friendly price tag, they were also a cinch to install. Who needed tar kettles, hoisting equipment, or pumping gear? Aspiring roofers simply got their hands on a paintbrush, a screwdriver, an extension cord, and a ladder. To get the job done, all they had to do was roll open a big sheet of rubber, stretch it across the roof, and seal the seams together. "A lot of those guys didn't know anything about the business," charges Tjelmeland, "but they could squeak by for five years."
Before underbidding themselves out of existence or getting kiboshed by unanticipated warranty claims, newcomers inflicted a lot of damage on T&K. At many a prebid meeting, Tjelmeland suddenly found himself as much as 25% above the lowest bid. "It was getting tougher and tougher to sell against these renegades," he concedes.
Fortunately, he sought out some guidance by attending a local workshop called Marketing in Tough Times. Brimming with new ideas, he began focusing on the possibility that the company might need a new image. Appleget agreed, substituting a fancy college word: positioning.
T&K's curse, Appleget argued, was that it had no distinctive selling point. The companies he had studied in college, such as IBM and Procter & Gamble, all stood for something and prided themselves on consistency. Consumers came to them with certain expectations. To the extent those expectations were met, they felt satisfied and came back again. T&K knew nothing about what its customers wanted. Indeed, it hardly ever spoke to them. T&K might install your company's roof, and you would never see the workers again. The company didn't project consistency, either; some of its trucks didn't even have T&K's name on them. "Nobody thought much about it," Tjelmeland says with a shrug.
In an odd way, the industry was ready for him. As competition grew keener, T&K would need the kind of skills that Tjelmeland had been developing through his outside ventures. At Data Management, for instance, he had perfected his ability to acquire and use timely information. And GP Systems had introduced him to the concept of marketing. Finally, Tjelmeland, for the first time since he had founded T&K, had a trustworthy management team in place. "It's a shame that I had to grow my own managers, but I did," he confesses. "In a day-to-day operational mode, I go to pieces." In addition to Appleget, son Kurt, then a recent law-school graduate, signed on as chief operating officer and corporate counsel in April 1987. (A younger son, Kreg, served as production manager until last July.)
It wasn't long before Tom decided to shelve GP Systems and rechannel his energies into the roofing business. "The roofing business could exist without GP Systems but not vice versa," says Kurt, now 28. Clearly, the company needed Tom's attention. Sifting through building permits, he could see that T&K, which once had performed 55% of the area's jobs, was now down to roughly 35%. "I saw there was business out there," says Tom, "and we had to get it."
How? Quite honestly, he didn't know. Nor did he pretend he had the energy to carry it out himself. "I was a kid when I started this," Tom says. "Youth is fun. I figure that if I can't go back to being 20, why not enable a couple of young men to lead interesting lives? Why not let the company benefit from their excitement?" He was giving his managers a mandate to remake T&K "with a modern image."
They would not disappoint him.* * *
Tom Tjelmeland founded T&K when he was just 20 years old. He had started working at age 14, dragging buckets of mortar around construction sites. "I never had much formal education," he says.
Kurt Tjelmeland and Scott Appleget, on the other hand, were so fresh out of school that Appleget wasn't above searching through his textbooks for answers to some of the company's real-world problems. "It's interesting what these educated guys can teach you," muses Tom. "Sometimes older ones don't want to look at new ideas, and these younger guys can run rampant. We work toward a balance."
It hasn't come naturally. Early on, Tom overdelegated. "I said, 'You take care of that,' but I didn't give any guidelines on how," he admits. At one point, without his knowledge, the managers worked on a software program that would help customers maintain their roofs and monitor costs. They even sold one customer on the program, though the manual was still 250 pages long. When Tom found out, he exploded. "They put the cart before the horse on that one," he says. None of them had considered, for instance, what the company's liability would be. "The whole thing went two steps beyond what it should have," says Kurt, sounding suitably contrite.
Tom and his managers meet weekly, huddling in his office with writing tablets on their laps. Sometimes they emerge with ideas that are better on paper than in practice. When they decided to launch recognition programs for the salesperson and foreman of the month, for instance, they failed to consider that they might run out of deserving employees in short order. "We didn't have any criteria," says Tom. "There was one guy who kept winning, and he started saying, 'Don't give that to me again. People keep asking why I'm winning, and even I don't know.' " Similarly, the monthly employee newsletter they started, "Tar & Feathered!" ran short of news. "Maybe we'll try every other month," suggests Tom.
To make T&K more competitive, he will try anything -- or at least that's the impression he tries to give his young managers, who draw ideas from everywhere. "I won't say, In roofing, you can't do that. I'll say, Before we try it, we need to make sure it's a viable idea," he says. "I'm in charge, but I don't throw my weight around. If it makes sense to me, we do it."
Some of Appleget's early marketing suggestions, for instance, made perfect sense -- and showed almost immediate payoffs. He recalled some of the fundamentals he had learned in school. To truly distinguish itself, the company first had to gain some understanding of what the customers expected. With that as a guide, the managers could then create an appropriate service strategy. Tom already knew what Appleget confirmed through informal talks with customers: people dislike roofers only slightly less than they dislike leaks. Some corporations, in fact, had grown so distrustful of roofers that they hired in-house experts to write specifications, monitor progress, and baby-sit the roofer. Not surprisingly, customers behaved that way because roofers had scorched them before. It was an attitude, Appleget contended, that T&K could use in its favor. After all, companies as diverse as Orville Redenbacher's and Perrier had profited by consistently exceeding customers' expectations -- and charging them slightly more for the favor. "By going in there and raising that expectation, you can limit the field," says Appleget.
Of course, none of that would have worked if T&K hadn't stayed in business -- or, more precisely, if it hadn't been perceived as still showing signs of life. To communicate its rebirth, Appleget designed a new logo, replacing Tom's nearly generic effort. Inspired by an Olympics insignia -- "I wanted that sense of motion," Appleget says -- he came up with a simple design, in which tracks connect the T and the K. Having picked up his boss's addiction to seminars, Appleget heeded a speaker's pronouncement that the combination of red and white garners the most attention. He opted for a rich burgundy imitating the shade of popular leather briefcases. And he mandated that the company's trucks -- except, for practical reasons, dump trucks -- be cleaned and repainted bright white. "There's a certain purity to it," says Appleget, citing the example of Federal Express vans. Tom recalls, "After we did it, people started coming up to me and saying, 'How many trucks do you own?' I'd say, 'No more than before. You just notice them more now.' They are traveling billboards."
If the trucks served as advertising, that was fine. But Appleget wanted to explore other media as well. Traditionally, T&K, like most roofing companies, parked its advertising budget in the same spot year after year: the Yellow Pages. But Appleget bought ads in a local business magazine. Then, in a bid to reach the kind of customers who would pay as much as 10% more, he came up with an outlandish outlet: a $450 ad in the program of the Cedar Rapids Symphony. "Every city has its hot buttons," says Appleget. "The high-profile companies here appear in there. I grew up here; I know." No one disputed him. "The people who go to the symphony own the biggest buildings in town," says Tom.
He could tell, because he had started going himself as part of a conscious effort to become more visible in Cedar Rapids. He also joined the local chamber of commerce, where he volunteered to host a networking party. In the fall of 1987 the company spent about $1,000 holding an open house, at which chamber representatives and employees celebrated his 25 years in business.
None of those efforts, says Appleget, yielded direct results. In other words, none of the people who hired T&K said they did so because of the ads or the parties. But in 1987 sales rose roughly 70% over the year before, to nearly $1.5 million. "Word of mouth will make you grow," says Tom. "We always did a good job. But we didn't have the growth until we forced people to notice us."
Encouraged, Tom, Kurt, and Appleget worked to find as many ways as possible to keep the T&K name before customers and potential customers. Adapting an idea from a trade journal, Appleget decided the company ought to send out roof-inspection reminders in the fall and spring. Salespeople also needed something attractive to leave with customers, so he designed T&K's first brochure, a high-gloss affair that came in a binder so it could be customized. Appleget insisted that the eight pages measure 9 by 11 inches rather than the standard 8½ by 11 because he "really wanted it to stand out." It must have; by 1988 sales were again up almost 70%, to nearly $2.5 million. "Before the marketing, we'd do a job and get maybe two referrals from it," says Tom. "Now we were getting five." Building permits showed that the company had pushed its market share up to 68%.
There was a dark side to T&K's growth, though. Some of those revenues, as Tom would soon find out, were actually sapping the company of its strength.* * *
"We use driving as a management tool here," says Tom. "It gives people time to talk things over. Every time the guys come back from a trip, I greet them by saying, 'OK, what are we going to do now?' "
After one particular trip in the summer of 1988 he got an especially long-winded answer. Kurt Tjelmeland and Scott Appleget had made a 12-hour drive to visit the company's troubled office in Fayetteville, Tenn. Tom had started the branch back in 1979 at a major customer's behest without much thought, he says. It showed, according to his two lieutenants. With sales of roughly $350,000, the division had barely crept much beyond that first customer. "It suffered from lack of follow-up," says Appleget. Managers came and went, but the numbers hardly budged.
In fact, Kurt had begun to think that the entire company suffered from a similar affliction. People he ran into told him stories: "I called you guys for a bid," they'd say, "but nobody ever got back to me." Kurt passed on leads to his salespeople, but they never seemed to result in jobs. What, he wondered, was happening to them? "It upset me," he says. After he delved into the problem, it soon became apparent that salespeople were not only burying leads but also bidding so low as to win jobs that were unprofitable from day one. No wonder the company's profits had slipped from a healthy 5% in 1987 to a paltry 1% in 1988. "There was a lack of control over our salespeople," says Tom. "We were getting more jobs, but we weren't reviewing the proposals."
On their return from Fayetteville, Kurt and Appleget started outlining an intricate lead-tracking and follow-up program. Appleget had already -- feeding Tom's bottomless appetite for computerization -- updated the company's computer files and even sent customers a letter heralding the company's rebirth.
Now they needed to reach out to new customers. They started collecting names from manufacturers, construction-industry reports, and newspaper articles. They sent out a low-key introductory letter, using some facts Appleget had mined from a page turner called One Hundred Years of Roofing. Within two weeks a salesperson would make a follow-up call and, if there was any interest, set up a meeting. If not, the salesperson and the general manager would do their best to unmask the decision maker -- it could be the owner or maybe the plant engineer -- and formulate a strategy. Maybe they should call back in nine months or six months or six weeks. Whatever the time frame, it would be entered in the computerized tickler system. ("Tom picks out the right software," says Kurt, "and I dig into it.")
T&K first tried the mailings in Cedar Rapids, then proceeded county by county throughout eastern Iowa until the spring of 1989. The company's salespeople buckled under the new formality; all four of them have been replaced. "Accountability is tough on some people," says Tom. Potential customers, on the other hand, didn't seem to resist. Appleget estimates the company picked up at least $1 million worth of business within a year, helping boost sales to nearly $4 million. Besides spending roughly $2,000 on the mailings, T&K has also spent $50,000 on computers, which it has been using to track where its leads come from so as to spend advertising dollars efficiently. "We'd be lost without immediate information," says Tom.
Indeed, with the technology cranked up, the company has begun sending out enough questionnaires to rival the U.S. Bureau of the Census. Hire T&K, and you'll receive a postjob questionnaire asking you to rate the company on a scale of one to 10. One question asks whether the salesperson acted in a timely fashion. When 4 out of every 100 respondents said no, "a flag went up," says Kurt. He then instituted a program in which a sales assistant records every potential customer who calls, a general manager assigns that lead to a salesperson, and everything is entered into a database. The computer regularly spits out reports enabling the general manager to tally the fate of every lead.
Even if you don't hire T&K, you'll get a questionnaire asking why. Was it the price? The type of roof? Kurt is not above picking up the phone to ask directly. If it sounds as though you're happy with the contractor, he'll ask, Who are you using? "They'll tell you something just to get rid of you," he says. "And whatever you learn is valuable. If you find out they chose a rubber roof, you can adapt your sales approach for that area."* * *
Had Tom Tjelmeland been aware of the power of marketing -- or even its existence as a discipline -- he would have been wise to shore up the company's internal controls before charging up his marketing effort. Profits, naturally, have suffered.
Last year, for example, the company lost $30,000 -- negligible but also easily preventable. More than $100,000 worth of equipment purchases helped nudge the company into the red, but also T&K's labor costs were way out of line, gobbling up 20% of revenues, rather than the 15% target. "Nobody here has worked in a company of this size," says Kurt. "We couldn't say, Go ask Tom, and he'll tell you how to do it." By putting new superintendents in place and adding the position of assistant foreman, the company hopes to exert better control over its crews. Just to make sure all 65 or so employees feel the urgency, Tom got them together and, using a dollar bill on an overhead projector as he had seen at a conference, showed them how just 3¢ to 5¢ of every dollar turns to profit. "They were aghast," he says.
He has also worked at building -- and focusing -- his management team. Last May, using an outline handed out by a speaker he'd heard, Tom retreated to a lodge with Kurt to devise the company's first strategic plan, which ran 21 pages. He recently added an accountant to increase his corporate staff to four. Twice in the past year the corporate staff has held meetings -- in Kansas City, Mo., and in Iowa City, Iowa -- with the company's three general managers, two of whom work outside company headquarters. Aside from a newly opened Huntsville, Ala., division (see "Natural Selection," December 1990, [Article link]), Tom spent $50,000 earlier this year acquiring the assets of a roofing company in Storm Lake, Iowa, on the other side of the state. "I have aggressive people here who want to grow," says Tom, whose puritan bearing belies his own ambitions. "We don't intend to stay the same size."
If current customers are any indication, the demand for quality roofing exists. "It used to be that people who did roofing were scary-looking people who couldn't find anything else," says Willis Schnell, vice-president of facilities at Merchants National Bank, in Cedar Rapids. "But T&K's people seem as if they could work inside the building, not just on it. They have excellent responsiveness on leaks." Adds another longtime customer, "There's a considerable difference in quality."
But the company won't be ready for new markets or further acquisitions until mid-1991. In this fiscal year, which ends March 30, Tom predicts that sales will increase to at least $4.5 million. Profits should climb back up to about 4%, he says -- which means that the company's strongest growth still lies ahead of it. Not that T&K has by any means abandoned the kind of imaginative marketing that has characterized its past five years.
The latest promotional brainstorm, in fact, just got off the ground in April. The company's new customer-service department -- complete with its own special truck, logo, and uniform -- grew out of a need that T&K's managers identified two summers ago. It seemed that every night around 5:00 a customer called with an emergency. The mechanical engineer drilled four holes in our roof for a chiller, the caller might say, and now it's starting to rain. Working under bright lights and at overtime rates, a crew would scramble out and get it patched. But how, T&K's managers began to wonder, could they be better prepared for such service calls?
Appleget sensed opportunity. Marketing textbooks often talk about moments of truth. Such moments, the theory goes, are specific encounters, turning points during which customers form solid opinions about a company. How customers feel, the experts say, depends on how well the company manages those moments. T&K, Appleget argued, could turn these emergencies into truly magic moments. Talks with big customers, such as 3M, Weyerhaeuser, and Rockwell, confirmed that they would use a 24-hour customer-service option. "We talked about it," says Kurt, "and we realized nobody else was doing it."
They also saw fatter profits, as long as the red-shirted journeymen kept busy. Most of T&K's roofers bill out at $30 an hour, but the special customer-service rep would charge $50 and carry far less equipment. "A service person will generate two or three times the normal revenues of a production employee," says Tom.
Such calculations, of course, are largely theoretical. So far the concept has required some fine-tuning. Given their often-unpredictable schedules, the service reps -- there is at least one in each T&K office -- found themselves falling behind, irritating customers. So some now carry cellular phones. If reps arrive when the customer is not there, they use doorknob hangers to let customers know they came and looked at the roof. "We'd get calls saying, 'Your man never showed up,' " says Appleget. "I figured, These things work for hotels, so why not try them?"
Of course, Appleget isn't the only one looking for new ideas. "I'm at the age when I'm supposed to be passing on my knowledge," says Tom, "but I find I'm still learning." He used to take off four to six weeks a year, but now, he says, "there's too much going on." One day he's off to Chicago, serving as chairman of a trade group's government-relations committee; the next he's speaking to an organization of roofing consultants; then he's at a convention of plant engineers. "I learn an awful lot," he says, "and I bring those ideas back here."
Lately he has his managers working on flowcharts, trying to buy more efficient bidding software, and experimenting with a 30-second television ad, among other things. Although he hasn't collected the information yet, he figures T&K's market share has risen to 72%. "What you have to do is go out there and talk to people and keep your eyes open," says Tom. "When you start working in some profession, you do it with a lot of ignorance. You go out and put roofing on.
"But to survive in any industry, that's not enough," he continues. "You have to do more. You have to take a leadership position."* * *
T&K's guide to low-budget market research
The managers of T&K Roofing Co. use a lot of imagination when it comes to marketing. But their ingenuity doesn't stop there.
Even internally, "we look at every process and try to figure out, How can we be different?" says Scott Appleget, marketing director. Almost always, it seems, they find a way. Take, for instance, their approach to market research. Forget flip charts and focus groups. "We have our own way of doing things around here," says Tom Tjelmeland, founder and president.
Last year the company decided that it was time to move its stagnant office in Fayetteville, Tenn., to a new location. Appleget and chief operating officer Kurt Tjelmeland narrowed the choices down to a few cities. Donning their trench coats and sunglasses, they went about their sleuthing.
On arriving in a town, the pair first stopped at the city's building department, where they scanned permits, getting a sense of who the major players were and what materials customers preferred. "One thing I learned in law school is that the best source for information is the government," says Kurt.
Next stop: the local chamber of commerce. "If there's a really good contractor, a pillar of the community, they'll tell you," he notes. Then, under cover of dusk, the tw