Ingredients for Separating a Diversification

June 6, 2011
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A truly effective disaster restoration service (or any worthwhile diversification) that stands on its own must have certain basic assets of its own from which to draw.



A truly effective disaster restoration service (or any worthwhile diversification) that stands on its own and doesn’t drain the assets of the corporation as originally conceived must have certain basic assets of its own from which to draw.

Consider the following points in your plans for any diversification effort:

1. Service List

First and foremost, it should have a comprehensive list of services distinctly different from those provided by other diversifications within the organization. They must meet the demands of your customer, the home or business owner, and the insurance representative as well. It simply isn’t sufficient to call on agents and adjusters and suggest you’re ready to tackle their disaster restoration needs when you only want to handle those services with which you feel comfortable, e.g. carpet, upholstery and drapery cleaning. Most likely you’ll get a polite, understanding smile along with a rapid dismissal.

At a minimum, this service list includes certain categories:
  • Basic services that include cleaning services for multiple surfaces such as ceilings, walls (painted, covered, paneled; all types), fixtures (windows, doors, lights, bath and kitchen fixtures, decorative trim), miscellaneous decorative items, hard and soft furnishings, floors, attics or exteriors.
  • Deodorization services for all structure and contents items in the damaged home or business.
  • Subcontracted services to restore any item the insurance representative needs someone to handle, but which can’t be restored in a first-class manner by company personnel; e.g., dry cleaning, HVAC restoration.
  • Reconstruction services may even be included in this category, but that’s a little beyond the capability of most smaller companies involved in disaster services, and construction services certainly aren’t required for a separate diversification.


2. Market Area

The next consideration in this separate diversification called disaster restoration is a well-defined, geographical market area. Generally, the market area served by a disaster division overlaps that served by the company’s cleaning division; however, this is not always the case.

Because of the nature and monetary value of an average claim, it’s often practical to extend the market area to perhaps a 10- to 60-mile radius, or farther, in order to arrive at and provide services on jobs located outside your company’s normal service area. It’s much more economically feasible to drive 60 miles with a crew and settle in for eight to ten hours to generate several thousand dollars than it is to drive the same distance for a carpet cleaning job producing only $200.

The biggest pitfall many restorers encounter lies in extending their market area too far. Often, they feel they can afford to drive anywhere if the job is big enough; but there are practical limitations that must be considered. First, there is the economic limitation, i.e., is it practical for the insurance company to pay you an unusually large sum just for driving to and from the loss, when someone closer may be able to process that job - though perhaps not as efficiently or effectively - and eliminate hundreds in vehicle and personnel charges?

Second, how far can personnel realistically travel? Are they willing to get up at the crack of dawn to drive to the job site and be there for a full eight to ten hours before driving home? Before you hurriedly answer “Yes!” consider the needs of the families of employees. How will their needs be provided for, in terms of the meals and parental guidance so essential to proper child rearing (especially in one-parent homes)? This may be an unobserved source of frustration to well-trained people, causing you to lose the very people you depend upon for the success of your business.

Still, the question to be answered before resorting to this is, “How will this affect my employees’ families if it becomes a frequent occurrence?” This discussion can be summarized in the cliché, “Don’t bite off more than you can chew!”

3. Personnel

In most disaster diversifications, the owner or manager of the firm is the first and key employee of the new diversification, if the firm is organized to the extent that he or she has time to manage a diversified business. His or her essential task is to provide both management and sales for the new diversification. Obviously, once jobs are obtained through the owner’s creative sales efforts, there is an immediate need for personnel to process those jobs.

Although the same owner or manager initially may be able to supervise work personally, one of the surest ways to see a disaster business stagnate is for managers to shackle themselves with responsibility for supervising the work on every job, while simultaneously providing sales, administration and coordination. What often happens is that managers sell jobs and then are tied up for days (if not weeks) supervising the work. Once that claim is completed, they quickly discover that there’s no more work to sustain the momentum of the new diversification. Why? Because no one’s been selling!

So what’s the solution?

From a staffing standpoint, eventually it is necessary to have someone who attends to management (the owner or general manager’s on-going job); someone who attends to sales and coordination (eventually, the job of the newly hired disaster coordinator); someone who remains on the job to provide continuous working supervision and quality control, and who ensures that all phases of the claim are completed in proper sequence and on a timely basis (the Disaster Supervisor). Finally, there is a need for a labor category that’s subdivided into two parts: part-time personnel, called in as needed, and subcontractors, with special skills not possessed by the company’s “in-house” personnel.

A properly staffed disaster diversification service has someone to provide:
  1. Management/Sales - the disaster division coordinator
  2. Working Supervision - the disaster supervisor
  3. Labor – part-time workers and subcontractors.
For now, take my word for it: people are your most important asset in any disaster service diversification.

4. Vehicles

A truly successful disaster diversification must have sufficient vehicles, both in number and type, to enable personnel to process the work acquired. If you want to see your newly formed diversification degenerate rapidly, simply fail to assign specific vehicles to that diversification. This not only hampers sales efforts, but it also creates chaos when supervisors, who need to transport crews and equipment, must unload and reload a hurriedly designated vehicle with all the chemical and equipment requirements for processing, and then keep that vehicle tied up on the disaster site for the days required to complete the job.

For this reason, purchase specific vehicles (they don’t have to be new) and commit them to the disaster division only.

5. Chemicals and Equipment

If you don’t provide specialized chemicals and equipment, as well as a commitment to training in their proper use, the service will never be as effective as it could be. Once purchased, specialized training is required for all processing personnel, not only in the use of those assets, but also in the all-important area of safety and OSHA compliance. Interestingly, chemicals and equipment required for disaster diversifications (other than specialized water damage restoration and deodorization equipment) are surprisingly inexpensive, consisting primarily of a few specific cleaning agents, deodorizing agents, a few special-purpose agents (cream restorers for wood furniture), and then basic brooms, mops, towels, sponges, ladders and so forth.

Again, the chief expense involved in diversifying into fire restoration (water restoration is another story) involves a few thousand dollars for deodorization equipment and a few thousand more for specialized vehicles.

6. Facilities

Most on-location cleaning businesses process their work in the customer’s home or business. In a disaster diversification, while we may attempt to process as much as possible on-location, inevitably a company facility is needed for temporary storage when removing goods from the structure is essential. So, a facility of some type eventually should be acquired.

7. Marketing Strategy

The next step in diversifying into disaster restoration is to develop a clearly defined marketing strategy. Marketing to the insurance industry is considerably different from wholesale or media marketing efforts employing the “shotgun” approach to residential and commercial customers served by an on-location cleaning division. (A basic eight-phase marketing strategy is elaborated upon considerably in Part 2 of our book “Fire’s Out! . . Now What?”)

8. Budget

One of the last, though not necessarily final, points to consider in establishing an organized disaster restoration diversification has to do with budgeting. You exert direct control over the budgeting effort in two specific ways: Start with goal-setting. Too often, managers adopt the attitude that there is nothing you can do to promote income in disaster services short of placing a professional arsonist on the payroll! (“Just kidding, sheriff!”) The common misconception is, “Either the claims are there or they aren’t.”

Nothing could be farther from the truth! While sales of water-damage restoration services may be affected by weather and other seasonal considerations, fire claims are present year-round. Therefore, it is realistic to establish specific goals for a disaster diversification and then seek to fulfill those goals with an aggressive, multi-phase marketing strategy.

The second step a conscientious manager can take to directly influence income and cost is data gathering, combined with analysis of that data on a monthly basis, for each specific division of the company. One of the mistakes most frequently made by managers of any diversified business is failure to separate accounting information when two or more divisions exist within the same organizational structure. The argument usually leveled is, “My business is too small for that; it’s just a lot of hassle, and I don’t need the aggravation right now!”

Let me hasten to emphasize that now is the best time to begin. Otherwise, you’ll wind up in the same turmoil in which most business owners find themselves after a few years, with no way to analyze how you got into your mess. All because you didn’t separate divisional income and expense data from your composite income statement.

You do receive and analyze a monthly income statement, don’t you?

Begin immediately to establish with your accountant a composite income statement that reflects items of general income and expense for the company. Then, insist on a statement broken out for each diversification, to see how those diversifications are individually contributing to the total profitability of the company.

Don’t put this off because you think you won’t need it! It will be required sooner or later, so you may as well coordinate with your accountant and start while it’s a relatively simple task. Once you’ve created a meaningful income statement, you must discipline yourself (since nothing worthwhile is easy) to read and analyze management information from that statement each month.

In summary, there are two ways to influence income and profits in your newly formed diversification: one, by establishing financial goals to be met with your marketing strategy, and two, by accumulating historical data through composite and broken-out income statements. This practice allows you to track the historical performance of each division of the company.

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