“Don’t put all your eggs in one basket.”
While we’ve all heard this saying, many don’t realize it originated in the book Don Quixote in 1615. The sentiment was likely repeated much earlier than the fifteenth century. The point is, for years, people have advised others to diversify.
The same can be said for the paving business. While pavement is our bread and butter (we’re dealing in sayings today), there are other services we can offer, many related to paving, that can diversify our businesses.
Why Diversify?
Between 2006 and 2008, the construction business reached a peak. Then the Great Recession hit, and employment levels dropped as work quickly fell off. Employment within the construction industry fell by 19.8%. People could not afford construction contracts. Pavement member Tom Merry with Rainier Asphalt and Concrete remembers the recession well:
“When the Great Recession hit us hard in 2009, we had huge concentration risk, with one customer representing almost 50 percent of our total revenues. That customer struggled in those years, and it hit us hard. For the last 15 years, we’ve been very focused on strategically building a diversified book of business — similar to a stock portfolio. Our customer base is now much more decentralized, and we have intentionally gotten into more market segments — multifamily, commercial, HOAs, shopping centers, schools, public works, etc. So if one market segment suffers, or if we lost a key customer, we feel good that we can ride out the storm.”
Tom Merry, Rainier Asphalt
The leading reason for diversification is to protect your business from financial strain or ruin in the case of economic downturns or other unexpected events like the COVID-19 based supply chain shortages. For Rainer, diversification meant intentionally looking at client bases to ensure they weren’t taking on too many similar clients. This has meant more financial security for Rainier since the recession ended.
Financial security isn’t the only reason, though. Diversifying your paving business is a great way to meet your customers where they’re at. Daren Young with DRYCO noticed many of their clients needed additional services after a paving job. Daren points to the example of an ADA upgrade.
“A simple ADA upgrade will typically require asphalt, concrete, seal coating, striping, and handrails (fence and iron). At DRYCO, we do that all ‘in-house,’ which is extremely valuable to busy property managers and helps to keep us as their preferred partner in construction. Another way we add value is helping to design the scope of work, prioritizing engineering needs. Our motto, ‘We’ve got you covered’, is more than a statement, it’s a promise.”
Daren Young, DRYCO
The fact that so many customers needed fencing and railing alongside their paving jobs convinced Daren he needed to jump into the business. It was 2009, the backside of the recession, and the fencing business was floundering, as was the rest of construction. Although it took a little time, once Daren had a dedicated fencing professional, DRYCO was able to truly meet its customers’ needs. “We do our best to make their jobs easier, and one way we do that is by offering a ‘one-stop’ experience. Our ‘one call, does it all’ motto means less hassle for them when it comes to their pavement maintenance needs.” With fencing and iron in place, DRYCO found a way to diversify and keep jobs “in-house” while offering more value at the same time.
Other reasons to diversify include the potential to fill off-season days with more jobs not tied to seasonal applications. This not only results in more profit but boosts morale and employee retention when crews have work to do.
How Do You Choose Where to Diversify?
Diversifying your paving business may not mean adding an iron and fencing division. It could encompass another aspect of the business that you notice is connected to paving and typically contracted to other companies. Diversification could also mean you diversify your clientele, as Rainier Asphalt did after 2009, and focus on a selection of commercial clients, residential clients, and even government clients. Finally, diversification could also mean changing and broadening the way you do sales and marketing.
It’s A Business, Not A Hobby
Diversification, while financially strategic, also comes with challenges. Setting up a new service like fencing requires new hires, new equipment, and new marketing. Dean Garrett with Morgan Pavement stresses the importance of knowing what makes sense to your business and what may just siphon time away from your current services.
“Regarding diversification, my thinking has always been this; If, in the course of our asphalt business, we use any given material, service, or subcontractor in our daily production – then we should give serious consideration as to what our business would look like if we owned and controlled that material, service or subcontractor. Our diversification has almost always involved vertical integration. We stay within the realms of what we know and do for a living. And we always do a pro-forma to justify the cost and the benefits to the bottom line. We do not want to acquire a ‘work hobby’ just to be busy. We want to acquire or build a profit center.”
Dean Garrett, Morgan Pavement
In short, ask yourself if a certain area of diversification makes sense for your company at this time. If not, you can return to that idea down the road or pursue ways to diversify your business that make the most sense to your company and clientele.