The housing market crash forced Bemus Landscape to switch strategies from design/build to maintenance. Here is how the California company did it.
Cover Story, Lawn and Landscape Magazine, Oct. 2011
Beginning in the 1990s, new home construction in Southern California enjoyed a 15-year boom. It ended with a spectacular crash when the bubble burst in 2008. Yet before flipping the tracks, it brought a few companies along for the ride. One of these was Bemus Landscape, a 40-year-old company based in San Clemente, Calif.
“As the housing market took off in the 90s, we took off with it,” says Jon Parry, Bemus Landscape’s general manager. “Working with homebuilders had always been a niche for us, but during that time, it was like the market was on steroids.”
Bemus Landscape was founded by Bill Bemus in 1973 when he began mowing lawns to pay his way through college. As the company grew, it developed strong relationships with national homebuilders. The company was earning 80 percent of its revenue from new home installations at the peak of the market.
Yet today, Bemus Landscape is a different company, now earning most of its revenue from maintenance work. Its focus on homeowners’ associations and a range of other commercial clients has helped Bemus to remain strong in tough times and offers a lesson in the value of diversification and strategic planning.
“We made a big push into maintenance because it’s more stable than installations,” Parry says. “As a result, we were better prepared for the economic downturn.”
Yet making the transition wasn’t easy. “It was an existential battle that involved questioning who and what we are,” Parry says. “These were construction-minded people – there was not so much dissent as lack of comprehension.”
Because they recognized that new home construction could not keep up its record pace forever, Bemus began implementing a five-year strategic plan to shift its business away from new home construction in 2004. Instead of earning 80 percent of its revenue from installations and 20 percent from maintenance contracts, it wanted to flip the ratio.
“The transition took us three years – not because we executed it so well, but because the construction industry fell off the ends of the earth,” Parry says with a laugh.
He adds that there were other reasons for making the strategic shift. At its peak, Bemus had more than 1,100 full-time employees in its ranks. Yet despite being one of the largest landscape contractors in Southern California, it had no guarantee of future work.
“In the construction business, your value is represented by the contracts you have in hand,” Parry says. “Future work isn’t signed yet, so we weren’t building equity.”
Although Parry says installations are often more lucrative than maintenance, he cautions that they also carry more risk. “The returns were not as great as they should have been, given our general liability, workers’ comp and contractual risk.”
Performing maintenance work, on the other hand, offered a more stable, longer-term revenue model. “For us, maintenance brought risk and reward into balance,” Parry says. “Recurring revenues build value that can be recognized on a balance sheet.”
Parry knew Bemus would have to rebrand itself as a maintenance contractor, but marketing to his customers turned out to be the least of his worries. The real hurdle was convincing his employees to change. There was a long learning curve for employees that took about a year.
“When we originally laid out the restructuring plan, employees’ attitudes covered the spectrum,” he says. “Some were on board from the outset, some were openly skeptical and others took a wait- and-see attitude. Ownership’s commitment to the goal, with the support of those who were early proponents, eventually brought the skeptics around.”
Parry had hoped to shift all of Bemus’ employees into maintenance, but because of the downturn in the economy, workforce cuts became necessary. Today, the company has 370 full-time employees – roughly one-third of the number they had at their peak. The reporting structure was also reorganized, and employees were retrained for maintenance work.
The process was time-consuming, but the biggest investment was in reorganizing. “There’s not a significant cost to getting new maintenance work,” Parry says.
Because Bemus had already developed name recognition with HOAs, setting up maintenance contracts for these groups was a natural fit. Today the company is seeking to further diversify its commercial client base.
“The HOAs are watching every penny, just like everyone else,” says Parry. “Many of these new developments have also been hard hit by foreclosure, so they’re stressed. HOAs are the core of our customer base, but we’re building a diverse portfolio. Right now, we’re making a concerted effort to get more work in commercial or industrial office properties.”
Parry says that he prefers working with commercial clients because they require less hand-holding than residential clients. Yet his clients keep him on his toes, and customer satisfaction and results remain Bemus’ top goals. In recent years, the company has added quality control systems to measure the outcomes of its work (see Quality Control, p. 74). As the program has improved quality, results have been communicated to clients.
“Our quality control program has paid big dividends for us,” says Parry. “In the past, we paid lip service to quality control, but now we implement it on every job.
“It’s really about focusing more on our clients,” he adds.
Bemus has also recently implemented a new client relationship structure. In past years, a single account manager acted as a point person on any given project. Today, Bemus assigns two people – one client representative to handle all client communication, and one field supervisor that handles crew communication and oversight.
“We’re better able to serve the client using two people, and it allows our staff to focus on what they’re best at,” Parry says. “This is a common way of overseeing projects in other parts of the country, but it’s not as common here – we’re learning from others.”
Finally, Bemus has invested resources in strengthening its sales team. “When the economy was booming, we had more business than we knew what to do with, and we were not so much salespeople as order takers,” Parry says. “Now we’re more disciplined. We’re building a platform for growth as the market returns.”
Bemus remains a profitable company despite a significant drop in revenue. In 2006, its revenue was $65 million. In 2010, it was $19 million. Most of the decrease is due to construction revenue being purged out of the system. Overall maintenance revenue is down about 5 percent in recent years, while installation, much of which was intentional, declined 90 percent, Parry says.
Still, Bemus’s renewed focus on creating a diverse portfolio of commercial landscaping work will keep the company healthy and profitable in coming years.
“As the market returns, we’re not interested in swinging like the pendulum, back to who we were before,” he says. “We’re not opportunists – we’re focused on the long-term.”