Editor's Note: In honor of National Small Business Week, Inc. is exploring clusters of small companies around the country that share distinctive strengths, challenges, and characters. 

The month of February is a working vacation for Wayne Smith.

Smith is founder of Wayne's Backhoe Service, a company that does everything from demolition to landscaping, based in Calabash, North Carolina. A couple of years after graduating from high school in 1975, "I got me a little rubber-tire backhoe--an old machine--and started the business," he says. In the early days, with the Army Corps of Engineers keeping him busy, Wayne's Backhoe got as big as 45 employees. But that required lots of travel, and Smith cut back to spend more time at home with his kids. Today he employs just over 20 people.

Excavators are the workhorses of companies like Smith's. A midsize new one, weighing around 20 tons, typically costs between $100,000 and $200,000, according to the buying advice site KompareIt. Wayne's Backhoe also uses other massive equipment like dump trucks, bulldozers, and (of course) backhoes.

So each year, on February 1, Smith and his wife head down to Orlando, where they join family and friends in a rented four-bedroom townhouse. They catch up, eat out, and see the sights. More important, they buy and sell trucks.

February is heavy-equipment auction month in central Florida, what amounts to spring break for the construction industry. There's the Alex Lyon auction, the Jeff Martin auction, and the Yoder & Frey auction--all quality events, says Smith, who this year hit all three. But those are appetizers leading up to the great feast: the Ritchie Bros. auction, which ran this year from February 10 to 23. Held on 250 acres with 13,800 new and used machines for sale, the 2019 edition attracted more than 15,000 bidders, the majority of them owners of small family businesses. (Simultaneous bidding occurs online.) Dozens of small trucking company owners turned up as well to help successful buyers cart away their massive prizes.

Heavy-equipment bidders are a boots-and-jeans crowd, mostly men who on ordinary days arrive at their work sites by 4 a.m. and obsess over deadlines and safety. Many have been coming to Orlando for years and made friends here. "We had a big reception on opening night, with over 1,200 people," says Ravi Saligram, the former CEO of OfficeMax who became Ritchie Bros.' chief in 2014. "People come with their spouses or their children and connect. These are enduring multi-generation relationships."

The chief attraction, though, is the potential for bargains. "You have to do your homework," says Smith, speaking from the auction where he was hoping to pick up one or two excavators. "I write down in my notes the maximal price I am willing to pay. Sometimes you get really good deals and sometimes you pay too much. All it takes is two people who want it, and what they are willing to pay determines the value of that machine in that minute."

Good deals matter a lot to small contractors. U.S. construction spending is healthy, hitting a record high of $1.3 trillion last year, with almost every project type and region experiencing gains, according to an analysis of government data by the Associated General Contractors of America. But heavy equipment is expensive. And large companies own a lot more of it, particularly after absorbing the assets of failed smaller competitors for cheap during the last economic downturn.

Adding to financial strain, project delays in this industry are common and costly, with culprits including bad weather and environmental regulations like those Smith grapples with when working in wetlands. And since sub- and sub-sub-contractors live far down the supply stream, payments often lag. "Another issue is that these are cyclical businesses," Saligram says. "If you overextend yourself, you can have trouble. During the recession, a lot of people in small and medium-size companies went out of business. But the courageous ones came back in."

50 miles of merchandise

When Ritchie Bros. attendees step off the bus that shuttles them from satellite parking, they feel the ground beneath them shake. That's the result of as many as 7,000 diesel engines juddering at one time as visitors audition the merchandise. In the lobby of the main building, bidders register and collect their 400-page spiral-bound books dense with product photos and specs. Each has a personal ID number on the cover, which auctioneers use to record a purchase.

The auction site is an ocean of yellow. The booms of crane trucks stretch skyward as though in salute. A procession of articulated dump trucks, each the size of four elephants, extends toward the horizon. "If we took all the equipment in our Orlando yard and lined it up, it would go about 50 miles--all the way from our yard to the Magic Kingdom and back," Saligram says.

Ronnie Hedrick II remembers this place when it was orange groves. In 2002, Ritchie Bros. had just bought the site and was looking for someone to handle the excavation. Hedrick and his dad drove around in a pickup, scoping out the job. "I was just a kid, and I can't remember if he even bid on it," says Hedrick, president of earthworks company Bul-Hed Corporation, based in Bartow, Florida.

At its bones, earthworks is as simple as an industry gets. "We move big chunks of dirt from spot to spot," Hedrick says. Yet by doing so Bul-Hed changes the way people live, work, and play. For example, the company reclaimed a former phosphate mine to create three golf courses at the award-winning Streamsong Resort in Bowling Green, Florida. And for the Southwest Florida Water Management District, Bul-Hed is using a new process called "hydraulic carving" to forge a natural-looking stream by pumping water over the course of one or two months through a channel. "We are accelerating nature's timeline," Hedrick says.

Ronnie Hedrick Sr. started Bul-Hed with three employees in 1997, after working 23 years for a large general contractor. Hedrick II became president about 10 years ago. "This business is all I've ever known," says Hedrick, who grew the company to 65 employees.

At the auction, Hedrick--along with his father, who is now CEO--is buying scrapers, which are used for earth moving. The family is also updating its fleet of around 200 pieces of heavy equipment by selling some bulldozers and pull tractors--though not the pull tractors they bought at last February's auction.

Hedrick says auctions create breathing room for small businesses like his with very high capital costs. You may land a job requiring a specific truck. You need it right now but can't afford a new one. Or say that job is over, and now your truck is sitting around getting balky through lack of use. A couple of years ago, Hedrick, who was on a tight schedule to push down a dam wall, bought a Caterpillar D8 at Ritchie Bros.' Orlando event. "We had it pushing dirt less than 24 hours from the time we raised our hand and were the top bidder," he says.

When in doubt, rent

For the Vazquez family, Ritchie Bros. was once a competitor.

Alvaro and Lourdes Vazquez left Cuba after Castro came to power and eight years later started Meco Miami, a garage-based business refurbishing used construction, agricultural, and mining equipment. Customers from the Caribbean and South and Central America would visit and ship their purchases overseas. On weekends, the family drove to cities like Atlanta, Cincinnati, and Cleveland buying inventory.

Then things changed. "The internet opened up the world to buy used equipment," says Michael Vazquez, the second-generation vice president of Meco Miami. "And now there are these auctions. People like to go for the sheer size of the inventory and because they believe they will get a better price."

So Meco became a dealer for new equipment, representing major brands like Sany from China, Dynapac from Sweden, and Mahindra from India. (It also still sells equipment used.) But the part of the business that's really booming is rentals, an attractive option for many small construction businesses. "You don't have the acquisition expense," Vazquez says. "If it breaks, you send it back and get another one." And because the company renting the equipment is responsible for repairs, contractors don't need their own service shops.

Ritchie Bros. helps Meco Miami constantly adjust its fleet to meet customer demands. Typically, Meco buys trucks at auction, keeps them in its rental fleet for three to five years, and then sells them back to Ritchie Bros. "We try to sell when our equipment hits 10,000 hours," Vazquez says. At this auction, he is selling 10 machines and buying excavators to add to inventory.

Of course, renting's popularity grows with uncertainty, something Vazquez says Floridians--particularly the small-business supporters of President Trump--are feeling in the lead-up to 2020. And Meco Miami is grappling with uncertainties of its own. Fluctuating tariffs affect the prices of new equipment the company imports, making it difficult to assess which brands will be the best deals. Unrest in Venezuela, where Meco has traditionally done robust business, has seriously depressed demand. And the Middle East, Meco's largest market, is struggling with low oil prices. "An enormous amount of infrastructure goes into oil producing refineries and exploration," Vazquez says. "When the price of oil goes up, the market will be activated again."

On the bright side, Meco's domestic market remains strong. And parts and service are selling briskly.

Vazquez has been attending Ritchie Bros. events for decades, in many of the more than 40 sites the auction business operates around the world. The most memorable, he says, was an auction held around 30 years ago at a mine in West Virginia. A then-20-something Vazquez went to buy a truck for a customer, who had authorized a price of $100,000. It sold for just $30,000. "Being a young, aggressive equipment man, I was very excited and ran to a pay phone and called my father," he says. "I said, 'We hit a home run! We are going to make $70,000 on this machine!'"

His father set him straight. They would give the customer the honest price. "The customer was very happy and gave us a much larger commission," Vazquez says. "That was a lesson for me. Treat people fairly or you will do business with them just one time."

Everyone's worst problem

Seven years ago, Joey Chambers, recently laid off and working "crazy shifts" at a paper mill, began taking small earthmoving jobs to make his house and truck payments. The side gig proved more lucrative than the mill job, so he saved up $10,000 and started Superior Custom Services, now a 30-employee business, based in Sandersville, Georgia.

In Orlando, Chambers's wish list included a concrete pump truck for his new concrete company and a couple of off-road dump trucks. He was also selling some dump trucks, some day cab trucks, and a paving machine.

The past two years have been big ones for SCS. The company picked up disaster recovery work after hurricanes in Texas and Florida, providing emergency fueling and cleaning up debris. In Puerto Rico, it helped AT&T get telecom back online. Waste-management jobs are a staple: cleaning out ditches and hauling dirt to cover trash to control the dust and smell. Another important sector is millwright services, which basically entail tending to large machines in factories and other work sites. And SCS does lots of environmental work, such as planting grass and reclaiming mines. "We really enjoy doing that," says Chambers.

Regulations are a hassle. There's too much permitting, Chambers says, particularly for Department of Transportation jobs. And changes in environmental laws can make it difficult for contractors to work on their own equipment.

But the chief problem for SCS is labor. Roughly 75 percent of the industry struggles to find good people, according to the Associated General Contractors of America. If you can operate heavy machinery, you already have a job. And, chances are, you can't operate heavy machinery. "There are not enough people out there who can run equipment anymore," Chambers says. "Everyone went to college and everyone wants a desk job. Nobody knows how to work with their hands."

According to Saligram, a shortage of mechanics, technicians, and operators is the single biggest issue on his customers' minds. "Our industry pays well, but it is hard work," he says. "Somehow the Millennial generation has not embraced these jobs. And that shortage has limited scalability."

"One of my customers asked if I was going to come down here to Orlando to buy more equipment," says Chambers. "I told him, 'I am going to buy some. But I have to limit myself, or when I take it home there will not be anybody to drive it.'"

Published on: May 8, 2019