Dashboard: Winter Is (Still) Coming

[Music] welcome to another 21 hats dashboard I'm Lauren Feldman and today my guest is Mel Gravely who is CEO of triversity construction in Cincinnati welcome back Mel laen great to be back and I always appreciate this time with you your questions are so insightful and what a crazy time we're living in so it's good to be with you yeah interesting times aren't they uh as a matter of fact that's kind of where I wanted to start with you Mel the last time we spoke was on the uh on this podcast in July when you told me some interesting facts about uh triversity construction you told me that you had a terrific backlog of work lined up for 2023 but you were also seeing some mixed signals in your business and in the economy uh that had you convinced that something was going to happen you weren't sure what you weren't sure when but you were pretty sure it wasn't going to be good I'm curious did it happen I gotta tell you um I feel like I'm having deja vu all over again if I were giving you a report today I would tell you the same thing you know so it hasn't happened yet it hasn't happened so here's what did happen we had a an unusually large number of our larger projects slip in start dates when I say slip that means they moved back yep and they moved back you know it's not unusual for a project to start 30 days later than you think it's going to start but it is unusual for a project to slip for four months or five months and so it's so we've had an unusually high percentage of our larger projects slip in it in their schedule we've only had one project that I think has has gone on hold and I don't think is coming back and it's a good project it's a great project but but it there's only been one the others are actually am convinced that the the uh the owners are going to build these projects and they're going to build them about when they think they're going to build them now so it has slipped but they're going to work so so interest rates are up labor costs are up uh Supply costs are up but now at least in more predictable ways um can't get Manpower and subcontracts um but yet my backlog is full the activity of new projects um is at least on par with where it was a year ago um if not up just slightly uh so I'm so so I'll just tell you I don't know what's going but the fundamentals of our um of the things that are going on I mean The Logical side of me says and the business side of me says this has to catch up to us at some point and If the Fed raises interest rates yet again and you know we've got some rumbling in the banking industry and and and I added in those other things I mentioned before around cost um I just can't see this continuing so but right now I'd have to tell you that we still struggle to hire enough people to do the work we've got um I was in our business development which is our sales meeting this morning and um I'm Blown Away by the opportunities that continue to come out as new leads and New Opportunities and ah so we talked about the labor situation last time and you explained that this is nothing new in construction that this is a long-term issue where you have too many people getting older and exiting and too few people uh coming in has anything changed at all is as the economy has you know maybe slowed and the the whole great resignation thing has faded away do you have more people showing interest or not we're having easier time uh people showing interest in jobs closing them is is a challenge because others are willing to pay higher wages than we probably are um and our wages aren't a problem it's some of the other stuff that sugar that people are putting on top of offers right now to get to get talent but fundamentally no nothing's changed I don't think the number of new entrances is has caught up with the number of folks uh the rate folks are leaving our industry I I I will tell you a dynamic that I didn't mention last time I don't think I did is the the impact of Mega projects so in in Ohio um and probably like it is in a lot of other parts of the state or country um there are these Mega projects you know a battery plant for you know an automobile manufacturer or a huge data center for you know meta or you know Microsoft um or Amazon the these those Mega projects are having an increased Demand on a already depleted Workforce and they are very aggressive about how they're trying to secure they being the the the Builders of the these big Mega projects they're very aggressive about their willingness to invest to make sure if there's a shortage of manow they're not short so there's that effect too both on labor and on supplies so that's a little bit of it that's really interesting Mel I I never would have uh thought of that you're in your industry if there's a a project somewhere that's hiring aggressively people will just pick up and go there oh absolutely AB it is not unusual especially for our subcontractors you know electricians and plumbers and and uh and the like uh uh concrete companies to to Simply say listen I can get a you know a three-year run at constant work um and they're adding premiums for me to show up uh why would I not do that for three years I mean it's and I I can't disagree you know if you if you pay let's just say an electrician makes uh you know $52 an hour and um and they're willing to pay the $52 an hour plus a $15 an hour on top of that just to make sure you come here instead of going any place else I'm not sure that I wouldn't say absolutely that's where I'm going and so sure so so the mega projects um from from buyers who just have margins that are ridiculous um you know that's going on too so it's a it's a but yet again we're going to have a decent year this year and um you know has it slowed you down have you had to turn down business yeah we we have so that's but we always do you know there's certain when you get busy there's certain projects that you probably would have taken because you could do them but they'd be a pain but you do them anyway now we just literally just say no so so we are we're probably turning down a little more than than we would have turned down before but um not significantly at least not yet do you see any hope is there a strategy you're contemplating to try to alleviate the the labor concerns going forward yeah there is um so we're actually going through some job design U exercises to to determine what folks need to have what talent and so imagine now instead of having um the need for everyone to have the same level of carpet experience that I might have one Carpenter for every you know three or four others that are supporting them in other ways um we're doing the same thing on our our four-year degree kind of construction management track where we're saying you know can we take a uh I don't know an architectural student and can convert them to construction can we take even a business management person and put them in a situation where they're managing some of the um scheduling and project management functions but they don't have to have as deep technical experience so we're we're toying around with a number of of uh things like that um but it's um they're all experiments right now and I can't tell you that we're where we are on outcomes yet sure how's the supply chain situation looking are you getting materials in a more regular fashion these days yeah I would call them more regular um so there's less crisis in the supply chain and so now if if someone is telling you that they can't get the project done because they were surprised by a material outage I would question that because you shouldn't be surprised now you know if steel takes What It Takes now it really does take What It Takes and you should be managing that into your uh into your your your schedule what what comes up though is let's just take fencing something very very simple you think what's the big deal about a fence well you know if you if you break a piece of the customer fence installing it or if the truck backs into the piece of the fence that that you're installing and you need another segment of fence late time on fencing is metal fencing is uh is pretty long and so that really oh yeah yeah yeah yeah yeah so just why is that I have no idea I have no idea that seems really surprising yeah well and it just they're weird things that just get they just get weird sometimes and so but but you know on the on the normal part of the project we know that fencing we know what fencing lead time is and so we order it based on lead time so the the things that really throw you off are things that either come in wrong and then you got to reorder them or things you damage or get damaged in the process um and that can frustrate customers because the lead times are longer than than normal and um you know but but nothing nowadays I I expect my team to manage that I I don't I don't expect to hear excuses about supply chain I mean you knew you knew what it was we started we didn't get caught in the middle of a project and everything changed we know what it is now we should be managing do that I think you told me last time that you were doing some pre- buying uh you were kind of working with your customers to get stuff in early make sure you'd have it make sure the price was locked in is that something that you think you'll keep doing or is that no longer necessary no I I think we'll keep doing it um I think we're also G to start buying um common things that go across our customers you know grab bars for example or things that fencing maybe fencing right but maybe you know some doors frames and Hardware where we are just just decide to have a small inventory of things that a lot lot of our customers use and so we'll do a little bit of that but but even that is more planful so you know we we get a new project we realize we've got to order certain things ahead of time we've gota I'm literally looking out of back my window at our storage facility and we we know we've got to have storage space for that stuff customer understands they've got to pay for it to be stored and we just that all has worked into the to the process so it's just less emergent as than it used to less disruptive how do you get business what's your uh what's your marketing like you don't think my my smiling face and Devon a charm is enough I I do actually uh and I bet you're out there uh pounding the pavement and going to a lot of meetings yeah but that doesn't pay the bills is what you're saying yeah well I'm asking yeah so uh couple of ways one we are our business model is built to to build for people who build a lot so most of our customers I'd say 65 70% of them are people who built last year built the year before and are building next year so they build a lot and so we've got a lot of ongoing customers and although we may have to compete for the next work we know it's coming and we get a chance to compete for it so that is one way um we are also like everyone else uh we are out networking with Architects and Engineers for what's what are they designing and working on and what customers are they working with and and leveraging our relationships to get be be invited to that party to participate in whether it's an RFP or an RFQ and and uh and we compete head up with other contractors and and we win our fair share and then there's a few uh just good old solid relationships where you know they don't build a lot but when they build they call us we don't have very many of those um in these days it's hard to have a lot of those but um that's generally how we how we run our business so you're not spending a lot of money on marketing no but we do spend a good bit on uh so I I guess probably do but we don't do Marketing in the place ads Place uh spots on radio Place space spots on TV um but we do a lot of brand work um and so whether it's social media branding whether it's um supporting just a plethora of community events and part of the reason is because we believe in a community but the other part is we want our brand out in the community um so we spend a lot of money and time on those things for sure oh that's interesting have you found social media to be effective yeah we have I I think social media is effective not in getting you work but making sure your brand is a known one that it's clear what you guys what what your company stands for um that you get you can get a positive kind of warmth when you're competing for work work but it also has been very very effective in um creating a um our employer employee uh value proposition um so that when we're recruiting and trying to bring people in they know us and um and they know what we stand for and if they if people like that you know then uh we're a great place to work so it's yeah we we spend a good bit of time thinking through what our social media strategy is going to be what platform are you on when you're trying to reach people who are potential employees uh primarily LinkedIn we do a good bit on Facebook as well interesting and um what what's the nature of what you do there are you are you writing about you know management issues that the way you yeah no none of that at all it's all uh it's all that uh I guess I'll call it that soft stuff that creates a a notion of what a company's all about so um let me pick something if if we've supported some community event and we've had 20 PE of our people there cleaning up a park or building a cooler for a homeless shelter or I see whatever they are we're capturing that and any of our folks win Awards or you know when it was International woman's day I mean we we literally had a a running video of every single female employee in our company and I thought it was a crazy idea until I heard the feedback from it um and so those are the kinds of things we you know will post up there interesting so so you told me at the beginning that uh you still have that same sense that there's something out there that could happen do you have a better sense now of what that might be are you yeah I I I I do but I you know um but I'm less confident that I know you know so I think we're going to have a recession that's going to sting and hopefully not hurt and um and I think it's going to cause a relative ly significant drop in our um discretionary construction activity some of the things we're building must be built and so we'll keep building those but when there's discretion or when interest rates are a viable critical part of it getting done um I think those things are gonna slow down and and maybe go away or maybe at least go on hold um and I think that's going to happen you know third fourth quarter this year um as we go into 2024 um and uh the good news is I think the things in our backlog because I I told the team to go pressure test every single project about against this um I I still maybe every company saying the same thing I still think we got a pretty good backlog still think we got a pretty good backlog I'm confident about 90% of the stuff in our backlog is going to go late this year early next year this is kind of a perfect example of conversations that people have been having I think for maybe more than a year it's you know every time you talk to somebody it's I think the recession might be about six months away and that that keeps getting put off but but nobody's convinced that it's not GNA happen yeah well I don't know how you could ever talk yourself into believing it's not gonna happen giving what we see you know going on I mean will right you know even little things micro things that you know like the the savings rate individual savings rate's down and the credit card rates are up well that's not good and um at some point the consumer is going to say okay I got enough debt I'm G to stop buying right now consumer is buying right through all of this so you know doesn't that make sense yeah or am I crazy no no I think you're right and I mean that's one of the things that people talk about about there were Consumer Debt was down people had a lot more cash coming out of the you know early days of the pandemic and that's no longer the case the way it was earlier it really isn't and I think when we get good and full of of debt you know kind of back to preco levels I think the uh and interest rates on that debt is significantly higher than it would have been before I just think it's gotta get people to stop spending and and when they do I mean that's close to 70% of our economy is consumer spending um I think we'll slow down so you've had some time to think about this are there opportunities that you imagine will be there should uh that recession arrive are you preparing for that yes yes and yes I think the opportunities um are going to be I think there's gonna be some businesses that are going to go on the market that will that are good businesses that um that we'll want to take advantage of so we're trying to position ourselves for that I think the m&a activity especially if you've got um good cash reserves and um and good mechanisms to fund them I think that'll I think that'll be the moment for some people to check out I I also think that there you know I just bought a facilities management company a very small one but part of the reason I did that is some work must be done and you if you own a facility you will maintain it and um and so you know we went to a more you know that's a basic level service and um so we're hopeful to kind of balance out any kind of recessionary activity with with services that are more um you know less discretionary more mandatory that's kind of like doing more rehab as opposed to new construction during a downturn I would think there's no doubt about that and I gotta tell you Mo you know 65 70% of all the work we do is some form of re rehab you know only 30% of our stuff is brand new out of the ground oh interesting I didn't realize that we do a ton of um large scale rehab um and a lot of it is inside of hospitals this Hospital work Healthcare work is 40 some percent of our business and uh so um this why I say for for a lot of this some of this this just has to happen because the technology is driving it or patient demand is diving it or or changes in health care priorities is driving it and so um some of this we're going to continue to to build through well that must put you in a slightly stronger position than somebody who's more reliant on new construction I would think going into a difficult period I would think so I think the contractors though that that do hard bid work where they're out there uh really bidding against the street where you might have 15 or 20 biders on a project I think those are the folks who I would be nervous right now because they have to use the lowest cost sub or they're not going to be the lowest bidder and if you use use the lowest part cost Sub in this market um they're they're risky often times times and can they deliver Manpower and can they cash flow projects and and and and I think those projects will will struggle and it'll be a it'll increase the risk so I'm we're mindful of those kind of projects right now because I just think the the subcontractor Market is so volatile um and there are a lot of contractors who um I think will struggle to to bring manpower to to projects did I miss anything m is there anything you're uh facing that I should have asked you about you never miss anything what do you mean you're too kind question yourself no I love this conversation though because um you know I talk to myself because there's no one to talk to but you know then you call [Laughter] and well it is distinctly my pleasure Mel graveley is CEO of triversity construction in Cincinnati he's also the author of a terrific book that I highly recommend called Dear White friend uh this episode was brought to you by the great game of business which helps businesses use an open book management system to help build healthier companies you can learn more at Great game.com Mel thanks for taking the time to share your perspective with us it is always my pleasure I'll talk to you next time sounds great have a great week everyone [Music]