Key Losses

Craig Deimler's production manager left Deimler & Sons Construction in November 2003. The person had worked in the key position for only seven months, but it took Deimler several days to undo the organizational and paperwork mess the employee left behind.

“I had a ton of making up to do from a customer service standpoint. Clients were angry because we started the job and then did not show up. He was running crews from place to place, but nothing was getting done,” the Harrisburg, Pa., remodeler recalls.

But the situation would have been truly awful if Deimler had not had a cross-training plan in place. He was able to redistribute the workload and keep the damage to a minimum. His sales staff picked up more of the sales so he could concentrate on fixing the problems, and the other production manager took on more work.

“We were $100,000 in the hole and during the four coldest months of the year, we turned that into an $80,000 profit,” Deimler says proudly.

Most remodeling company owners will lose a key employee at some point in their tenure. Whether the employee is being fired, relocating, or starting their own company, owners can prepare for this eventuality. They can be ready for the steps they will need to take when that person leaves. And they can set up policies and procedures that prevent major disruptions.

When an employee leaves, the company owner needs to provide continuity on projects, inform clients and staff of the change, and find a replacement. Andrew Shore of Irvine, Calif.–based Seapointe Construction has a checklist that includes items like turning in a cell phone and gas card and removing the person's name from the paperwork for insurance and 401(k) plans. “If they are leaving voluntarily, we ask them to sign a form that states it is voluntary,” Shore says. (This is because former employees resigned and subsequently filed for unemployment stating they were laid off or fired.)

Positions vacated for tragic and unexpected reasons can be the most touchy to fill. When his sales manager died in a car accident, Jason Larson took over the manager's current jobs as well as the 10 jobs the salesperson had sold but not handed off to production. The president of Lars Construction, La Mesa, Calif., made it clear to clients that anything that was in writing would be honored, but verbal agreements with the salesperson would not stand. “We had them acknowledge this in writing,” Larson says. He told clients they could void the contract if they were not satisfied with the terms. “We went back to the negotiating table with some of them,” Larson says.

When Joseph Kraft of Kraft Design Build asked his foreman/vice president to leave, he was faced with several projects that were mired in multiple-page punch lists. “I stopped taking on new work, and as we finished other jobs, I put those teams on these projects to give them our full attention,” says the San Carlos, Calif., remodeler. He also had to salvage client relationships and referrals. “I tried not to air the company's dirty laundry, but one set of clients had high expectations of us. I had to explain to them that we were a good company, but we hit a rough spot,” Kraft says.

In his 35 years running Weiss & Company, Carmel, Ind., Mike Weiss has found that informing clients prevents the former employee from stealing those clients. “I notify clients immediately. In some cases, I've let clients know the day I was going to ask the person to leave,” he says. “I ask them to let me know if the employee contacts them.”

Remodelers should also make a company-wide announcement. Shore puts a positive spin on it at company meetings. “I say, ‘Jim is leaving for this opportunity; we wish him the best of luck,'” he says. This prevents gossip and keeps the door open for that person to return.

If the employee leaves voluntarily, Shore suggests keeping communication channels open. When his kitchen designer left, he was able to contact her for a month afterward to ask her about projects. When his bookkeeper moved, during her one month notice, she helped hire and train her replacement. “She was available by phone to help us if there was a problem. I paid her an hourly rate for helping us. It took about 20 to 30 hours over a few months,” he says. “It was a life saver.”

Staying in touch is also a good idea in case the employee decides to return. “When an employee comes to you and says I want to try going out on my own, you help this person,” Weiss says. “If they make it, they are good competitors. If they don't make it, they will come back.”

Weiss says when a key employee decides to leave the company, it is most likely the fault of the owner. “You did not find out something that was bothering them. If you're a good CEO, you should see it coming and prepare for it,” he says. There are steps you can take to prevent the loss — or at least smooth the transition if the vacancy is unavoidable.

Pay attention to employees. Make sure all employees have a clear job description and are well compensated. Talk about their career path during reviews and give them clear parameters on their job. Weiss says deferred compensation is a way to get key employees to stay. When his company was larger, he offered his field staff an incentive that was payable over time. “This is a level of sophistication that most remodeling companies might recognize but don't practice,” he says.

Kraft wants employees to view him as approachable so he can address issues when they arise. If he senses a problem with an employee, he runs an ad and interviews for that position. “Once I have someone in mind, I address the issue with the current employee,” he says. “If they walk, I have someone in the wings.”

John Kreiss, president of SullivanKreiss, a firm that specializes in conducting high-level executive searches for the design and construction industries, says most turnover is due to lack of communication, not dollars. He suggests asking employees to fill out a confidential survey or hiring an independent consultant to conduct phone interviews. If an owner suspects a problem, they should take the employee to lunch and talk about it. They should also touch base with the employee's clients and subcontractors.

Have strong systems and fair policies. Weiss says the most effective preventive measure is to set a paper trail. “Create systems that do 90% of what is necessary,” he says. Deimler says numbers do not lie. He noticed a $15,000 loss within the first month of hiring his production manager but dismissed it based on bad weather. When he noticed a $40,000 loss the next month, he gave his employee an ultimatum to improve his performance or leave. “I should have made that warning at the end of the first month, so he would be gone by the end of the second month,” Deimler says.

Larson used the loss of his salesperson to evaluate his client contract and specifications. Previously, the salesperson typed specs without a standard format. “We went from [a contract] that was three or four pages to one that is 18 or 20 pages,” he says. “It details everything we are doing and the opening paragraph says nothing verbal has been promised — everything is in the written specs.”

Larson also realized the pay system he had in place for sales was not good for his company. “We were paying on a draw system, rather than paying as part of the profit of a job,” Larson says. He changed the system to make the salesperson accountable for the job through the construction side. He also asks new sales hires to sign an agreement in the employee handbook on how they will be compensated if they resign or are fired.

Cross-train your employees. When Deimler was in business with his father, they trained each other on their jobs so they could both take two-week vacations. He expanded this cross-training to the whole company. For example, his accounting person is trained to fill in for the data entry person. If the accounting person is on vacation, the data entry person can do her job. When the secretary is on vacation, the draftsperson and production coordinator take turns answering the phones.

To facilitate the cross-training, Deimler created job manuals so an employee could check with the manual if they had a question. He says the accounting and secretary manuals are the most thorough because those jobs are process-driven. “When I hired a new secretary, the new one was able to get up to speed in four days with very little training on my part because she could read the manual,” he says.

Shore has similar cross-training and written procedures for each of the positions at his company. “If a lead carpenter is leaving, I try to put another lead on that job right away and have them work together for a few days so there is continuity on the job,” he says.

Add a non-compete clause to your employee contract. Weiss asks new employees to sign the company manual that includes a non-compete section that states if they leave the company under any terms, they cannot use the company forms, policies, procedures, or customer list for a certain period of time. Weiss has had to use verbal and written warnings for former employees. “If you're dealing with someone honest, the intimidation is all you need. If they aren't honest, it doesn't make a difference what you have written down,” he says. He says even with the agreement, suing the person can be expensive and not worth the trouble if the person does not have assets.

Use the opportunity to restructure. When Weiss' general manager resigned for personal reasons in 1995, Weiss first thought about looking for a replacement. “But she was so good and so much of the company depended on her, I could not have continued in the long run without her. I decided to down-size the company to the point where I could manage it myself,” he says.

After hiring and firing two employees who managed one division of his company, Kraft decided to downsize that division and run it himself. “I make $10,000 less per year, but I have more peace of mind,” Kraft says.

Screen more carefully during the hiring process. Deimler suggests checking all references. He follows new employee progress closely and conducts spot checks. For example, when he hired a new salesperson, he would show up unannounced right before sales meetings with clients. Larson asks new employees to ride along with him. For key positions, Kraft looks for an educated employee. “They are usually looking to build a career,” he says. “It weeds out instability.”

It's inevitable that employees will leave. Have a process in place to ease the pain.

John Kreiss, president of SullivanKreiss, a firm that specializes in conducting high-level executive searches for the design and construction industries, suggests eight key areas to focus on to minimize disruptions.