Though Tom Kelly has led Neil Kelly Co. for 20 years, recent decisions for the business were what caught the attention of the Fred Case Award judges, who were impressed by the company’s three dynamic growth areas in home performance, handyman work, and acquisitions.
In an industry where company expansion by making even one purchase is a rare accomplishment, Kelly has spearheaded several successful acquisitions. But, as award judge Mark Richardson, co-chairman of Case Design/Remodeling in Bethesda, Md., points out, “Entrepreneurial thinking must be an integral part of your company culture. You have to celebrate it and take a bit of risk” — even more so in today’s market where remodelers need to embrace change or risk becoming irrelevant.
Fred Case, founder and CEO of Case Design/Remodeling and of Case Handyman & Remodeling Services, and the award’s originator, says that in the remodeling industry, company owners have to reassess their business every month, which provides “a wonderful opportunity to listen to the market.” In Case’s opinion, “Tom Kelly is doing a good job of that.”
Kelly says that his company’s three growth areas are “laying the groundwork for the recovery and what the future is going to bring.” Neil Kelly board member Tony Leineweber, executive director of the Portland State University Foundation, says that Neil Kelly’s combination of both organic growth and acquisitions is a successful formula. “The inherent value to that strategy is that you have your base corporate overhead already established,” Leineweber says. “When you add on with sales and production teams that have profit margins built in, you spread that overhead over a greater revenue base. It’s prudent to grow both ways.” He says that Kelly is viewed as a stellar leader in Portland’s business community and sustainability movement, and is also known for his philanthropic work.
When the city of Portland was allocating the $20 million grant it received to expand its home energy-efficiency pilot program, Kelly made a presentation to the council, appealing to its members to create a long-term model that could expand to meet the city’s objectives of offering affordable home energy upgrades to homeowners, lowering energy use and boosting the economy in the process.
In his presentation, Kelly described his experience during the 1970s, when Neil Kelly invested in weatherization to help its clients take advantage of federal tax credits. But that segment of the business ended when the government repealed the incentives. Kelly would like to avoid a repeat of those past disappointments, saying, “We don’t want to build up energy that then falls flat.”
Derek Smith, executive director of Clean Energy Works Oregon (CEWO), the entity formed to accomplish the goal of home-energy upgrades in that state (see sidebar for more about CEWO), says that he and the council took Kelly’s words to heart.
“His words ring with me today still,” Smith says. “That is why we are very focused on having a self-sustaining business model and working with contractors like Neil Kelly that are known for quality and service and will help our brand endure.”
Kelly feels that this time, the energy-efficient upgrade market is here to stay. He’s backing his belief by investing in Neil Kelly’s home performance division.
In August 2009, Kelly hired Chad Ruhoff, a small production builder from Eugene, as a salesperson for the home performance division, which had four full-time staff. Ruhoff, who is now general manager of the division, says that CEWO is “bringing jobs and a good program together to make home performance really take off.”
Kelly says that the program allows its qualified contractors to use a code in their promotional materials that drives leads through the CEWO website to the contractor. “When we saw the promo code opportunity, I went ‘wow’,” Kelly says. He quickly started to use his company’s CEWO code in a comprehensive marketing program with direct mail and newspapers ads. But the most effective marketing came when the company promoted the program to its employees and asked them to send it to friends and neighbors. “Of the first 60 (contractor) leads that came into CEWO — half were ours. To do that and get that kind of result — that is exciting,” Kelly says.
Neil Kelly’s home performance division grew from $450,000 in 2009 to $1.3 million in 2010, when the CEWO program was still in its pilot phase. CEWO’s rebate offer started in March 2011, and in the past few months, the company has completed more than $450,000 in home performance projects per month. “We’re doing as much in a month as we did in the whole year of 2009,” Kelly says. “If we keep this going, on an annualized basis, it could be $5 million to $6 million.”
He says the phenomenal growth of the home performance division has reenergized the company. Besides Ruhoff, the division includes five salespeople, an office coordinator, three auditors, three project managers, five carpenters, and four insulators. The company is hiring to service the leads it is receiving from marketing the program and will soon add two to three insulators, an auditor, and another salesperson.
Ruhoff has given up his project management duties. “We would build sales, then produce, then there was a dip in sales while I concentrated on production,” he says. “It was frustrating for the installers to wait for sales. Once we separated them, we could have strong quality control in production and focus on sales.”
Sales & Marketing
When the company receives a lead, the home performance staff set up an audit appointment for the homeowner with a salesperson and an auditor. “Both are [Building Performance Institute]-certified, but one is more data collection, the other finds out more what homeowners needs are and addresses and designs the type of project we are going to do at their house,” Ruhoff says. During the appointment, two people perform the audit, which takes between two to three hours.
Once the company comes up with a plan, the production side schedules and undertakes the work. In-house staff complete the air sealing, but dense-pack cellulose insulation is subcontracted. “We looked at doing it internally but, because we are doing big volume, we negotiated good pricing,” Kelly says. The company also subcontracts HVAC and plumbing work.
In addition, the company promotes energy efficiency to its design/build customers. Homeowners who sign a design retainer for more than $1,000, receive a free energy audit. “We look at energy efficiency as part of the remodeling job, as well as providing a service that helps homeowners better manage their house,” Kelly says, noting that he views the audit cost as part of the marketing budget. He says that at least 50% of those customers choose to complete some part of the audit proposal and, he points out, “for the remodeling side, that means an upgraded sale.”
Kelly and Ruhoff have regular management meetings every other week, but with the current pace, they sometimes meet several times a day. “The budget we started with at the beginning of the year doesn’t look anything like the budget we have now,” Ruhoff says.
The home performance team meets twice a month with Ruhoff, Kelly, and Julia Spence, the vice president of human resources and communications. “Everyone gets together to talk about successes and things we can improve on. We go over customer feedback, both positive and negative, so we can learn from it,” Ruhoff says.
The production staff meets weekly to review schedules for the following week, as well as to discuss tips and techniques to improve efficiency.
Ruhoff describes Kelly as a great boss. “He’s enthusiastic about what we are doing, and a little bit cautiously optimistic. He wants to grow at a pace that is fast and yet responsible. He doesn’t want a big bubble and to then have things slow down and have to let people go.”
The company culture at Neil Kelly is also appreciated by its staff. “It’s not all about dollars and cents,” Ruhoff says. “It’s about, how does it affect the environment? How does it affect our clients? The clients come first. They have a high satisfaction rate. I’m excited to be with a company that has that attitude toward customer service.”
Here to Stay
Kelly recognizes the broad motivators such as global warming, energy security, and removing dependency on foreign oil that are driving the market, and he plans to be ready.
Neil Kelly’s Bend, Ore., office recently began offering home-performance services; the Eugene office will offer them this January; and the new Seattle office by spring 2012. “For each of those locations, we will have one person to start with,” Ruhoff says, “and then build it based on how much response we get.”
Although other remodelers in the country have long had energy-retrofit divisions, and Kelly admits that he was “slow on the uptake” with this type of work, he says that when he did eventually get into the energy retrofit game, “it was magical.”
For his part, Ruhoff would like to see more remodelers take on energy retrofits. “Remodelers are used to dealing with all these systems. They just might be looking at them slightly differently. It’s a natural fit,” he says, noting that its a bigger jump for single-line contractors.
Kelly believes that after his company completes this initial round of energy upgrades, “we will be back in those houses in five to 15 years doing a deeper energy retrofit.” He anticipates that more and more states will offer programs similar to CEWO. “My vision of the future is that for the remodeling industry, energy retrofits will be part of what we do and who we are in ways we can’t imagine,” he says.
In 1988, Oregon was just coming out of a recession, and area businesses were planning for growth. Neil Kelly discussed extending its reach in Portland with a second location. When the owner of Kitchens Kitchens approached Tom Kelly about buying her west Portland business, he thought this was a good opportunity for expansion. “In a way, it was a defensive move,” he says, because some of Neil Kelly’s clients weren’t enthusiastic about visiting the north Portland showroom due to its location in a rough part of town.
That successful purchase set the path for additional acquisitions, but Kelly’s cautiousness meant the next purchase wouldn’t come until 2005. From 1988 to 2005, Kelly had several opportunities for acquisitions but chose not to pursue them, noting “two were in markets we judged to be too small.”
In 2005, the company purchased an Oregon remodeling company that was a Neil Kelly Cabinets dealer in Eugene whose owner wanted to retire. “That was a big step for us,” Kelly says. “Having a location on the west side is one thing — having a location 100 miles away is another. Initially, I was concerned that this was not the right move for us.” One of Neil Kelly’s board members encouraged Kelly to pursue the opportunity, saying that it would test the company’s ability to profitably operate a remote location. “He said, ‘It’s a fairly low investment to see if it will work,’” Kelly recalls.
In 2008, Kelly began researching a location in the city of Bend, Ore. As a courtesy, he called Kitchen & Bath Concepts, a Neil Kelly Cabinets dealer in the city to notify him about the planned expansion. As it happened, the owner had recently spoken to a business broker about retiring and selling his company, and Kelly made him an offer.
The Neil Kelly company had long considered a move to Seattle, almost 200 miles away, because the large market includes the outlying cities of Tacoma, Bellevue, and Redmond. Carolyn Boardman, the owner of Seattle Design/Build had followed Neil Kelly for years and admired the company’s team-based management system.
Two years ago, she called Kelly after reading an article in REMODELING where he expressed interest in a location in that city. After speaking to her, he held off on a decision because of the downturn, but reopened discussions last year, finalizing the sale in 2011. During the hold period, Boardman says she and Kelly kept in touch through “short, informative e-mails that secured the fact that we were both still interested.”
Kelly consulted with Neil Kelly’s board of directors about the purchase. Board member Tony Leineweber says that at one point Kelly expressed frustration at the board’s questions. “He said, ‘I’m getting the impression that you are all opposed to this,’” Leineweber says. The board members told Kelly that they viewed the purchase favorably, but wanted to provide a thorough analysis. Leineweber says that Kelly diligently worked to answer the board’s questions.
This acquisition was different from the previous three because the owner is staying on as general manager. Boardman was concerned about maintaining a leadership role at the Seattle location, but found that “Tom is very supportive of the entrepreneurial spirit in his employees.” She had admired Neil Kelly as an outsider, and says she is even more impressed as she learns more about the inner workings of the company and experiences Kelly’s team-building skills and ability to inspire those around him to support his efforts.
Leineweber says that Kelly’s is a consultative management style, relying on managers for relevant information. Kelly also invites new managers to attend the board meetings so they can get to know the board members.
To convey Neil Kelly’s company culture, Kelly has followed a single philosophy through all the acquisitions: At least one current employee of Neil Kelly should move to the new location. “You need to have at least one individual who has been part of your company and understands the culture, the process, and procedures well. I believe very deeply in that,” he says.
Two Neil Kelly employees — a sales designer and project manager — moved from Portland to Seattle. Nine of Seattle Design/Build’s 10 employees stayed on after the purchase. Kelly says that it takes a lot of time, attention, and training to absorb the new employees into the company.
His management team is visiting Seattle and attending meetings, and Boardman has visited Portland several times. The company is also planning to have Seattle sales staff shadow Portland salespeople for a day or two. “The informal communication that happens in that environment is as important as classroom information,” Kelly says.
Kelly has weathered several recessions in his 20 years at the helm of Neil Kelly and says that these downturns create opportunities that might not exist in a growth cycle. In fact, he adds, remodelers who expand in a growth cycle have to compete with other remodelers for trade contractors, employees, and clients. During a downturn, people are looking for jobs and trade contractors are vying for your business. Kelly prefers acquiring an existing company versus opening a new location because an existing company has relationships with trades, clients, and employees.
Though Neil Kelly is a green company, Tom Kelly deliberately chose not to pursue solar projects for two reasons. First, he believes energy retrofits are a more powerful solution for consumers than solar, and “contractors’ expertise is more directly relatable to energy retrofits.” Second, from his experience in the 1970s, it’s diff icult for remodelers to keep up with solar technology.
He also won’t borrow money to make an acquisition. “I’m not a believer in leveraged expansion. It’s OK to borrow to buy real estate, but beyond that we do not want to use it to finance our business.” However, he does prepare by asking his bank for a higher line of credit as a protective measure.
This year, Neil Kelly also rebranded its handyman division as HomeForce (see “Out in Force” sidebar). The division started as The Home Repair Team in 1994 and in 2006 the term “handyman” was added, which saw business increase because “it more clearly defined for the consumer what we were,” Kelly says.
More recently, the company had been contemplating a new identity for the division, shifting away from small repair jobs. Though the company can and will do small jobs, Kelly also wants to capture “the next tier up, but below design/build.” These projects include siding and window replacement, porches, and exterior makeovers.
After struggling to find just the right name for the new division, the company’s ad agency consultant sent a list of suggestions that included “HomeForce.” Kelly instantly homed in on that as the perfect name, and his management team agreed.
The handyman division doesn’t have a separate manager. As the company continues to navigate the tough economy, Kelly chose to run this division in a team format with Kelly managing sales, the VP of human resources handling staffing, and a production manager overseeing projects. “It was necessary to consolidate,” Kelly says, but adds, “I’m a delegator as opposed to a controller,” so as the economy recovers, he will hand over duties to a separate manager. He wants to distinguish each of these divisions as separate from Neil Kelly’s core brand. “HomeForce, Neil Kelly Cabinets, and Home Performance are all sub-brands. A lot of business will be connected to our clientele base, but we also want to attract new clients.”
—Nina Patel, senior editor, REMODELING.