I’ve spent over a quarter century focusing on the dynamics that shape the residential energy industries and their customers. That’s hard for a guy to contemplate, especially one who doesn’t think of himself as over 23 in his own mind.
During the years, there have been plenty of times when the Chicken Littles have sounded their alarms that the oil heat sky is falling. But this time, it feels different, doesn’t it? For those of you who sell oil, doesn’t it feel like the industry is weary? Weary of fighting an eight-front war against competing fuels, declining gallons, unfavorable government policies and regulations, volatile markets, difficult customers, dwindling infrastructure, unhappy banks—and frankly—each other.
The weariness shows up in declining attendance at trade shows; in the constant struggle for associations to engage active members; in the number of companies contemplating selling; and in the general tone of pessimism that has crept into conversations about the future of the product.
Maybe, as one client said recently, this is how it felt to be a coal company observing the accelerating growth of heating oil, and struggling with the decision to stay the course or embrace change.
No one has a corner on the best way to play the future trends. But I have had the good fortune of focusing on this with some of the best companies in the industry through our Breakthrough Groups. The picture that is emerging from them is insightful. By design, the companies who participate have already decided they need to evolve, diversify and improve. Based on recent discussions, if I were running a heating oil based company, here’s some things I would be paying attention to right now:
Diversification offers a good road forward; but it is not without potholes
If it were easy making money selling general HVAC services, plumbing, insulation, energy audits, you name it, we’d see a lot more big successful companies in that space. The fact is, it’s hard, and often involves the kind of hyper-focused attention to labor management, flexible pricing, and hard core sales and marketing that fuel dealers traditionally have neither embraced nor excelled at.
Of course, you do bring some real advantages to this party—namely, strong relationships with an existing base of customers, good name recognition in the community, better access to capital than most of the competition, technical strengths in some of these areas, and stability.
But there are disadvantages too. Here are the ones that our group members have identified, and are trying to address:
You are well known, but you are known for the wrong product. You need to get the public to see you as more than a heating oil company. (By the way, if your marketing agency suggests you put in your ads, “We are more than just a heating oil company,” fire them. Email me if you want to know why.)
Your legacy business can get in the way of your new ventures. Some of you are so afraid of offending our existing fuel base, you constrain promotion. This happens especially when companies are moving into propane or discount oil, or start doing installations of gas fueled appliances. Do you make sure your customer base knows you do conversions, or do you bury it on a statement somewhere? Do you use your own trucks for discount deliveries? Do you change your name, or operate a business under a different one? Do you charge your oil customers the same way as you charge non-fuel?
It turns out that there are multiple ways to do this dance. But many of you tend to see things in black and white, or import your old sacred cows into the new business. This “in the box” thinking really undermines your ability to approach these new opportunities as they need to be played. The companies that are successfully diversifying are very conscious of this tendency, and do a good amount of self-examination and benchmarking to reveal their blind spots. It is one thing to say we’re now a “total energy company.” It’s another to actually think it deep in your organizational bones and act from there.
Many oil companies have developed an intrinsic conservatism over the years. Because it is so hard to find new oil customers, they are now more motivated by fear of upsetting their apple carts than by the opportunity to find some oranges, bananas, and god forbid, papayas. We do not embrace experimentation easily, and equate it with risk. In fact, it is the resistance to change that poses the greatest risk.
Most fuel dealers have spent years developing a culture that takes pride in “coming through for our customers no matter what.” You go through crazy situations to keep people warm. You bend over backwards so much that Gumby is jealous.
Unfortunately, that approach, while admirable, is insufficient to win in an environment with fewer gallons per customer, more aggressive competitors, and, most importantly, a customer base that increasingly wants more than just “great service.”
My friend David Singer (Robison Energy, Westchester, NY) aptly characterized this challenge after sitting through a day of group discussions. “We have traditionally managed to margin and customer satisfaction rather than to profit. If we handled the first two, the third generally worked out. That doesn’t work anymore, because our real margins are increasingly constrained, and great customer service is not enough to defend against everything we are up against.”
Instead, our groups are finding that you need to get much better at managing the details of your business—particularly the performance metrics that are the early warning signs of profit saboteurs. For that to happen, however, you need to be able to get better business intelligence. You need to act quicker as our winters seem to be getting more condensed, and there’s less margin for error. And, as your business gets more complicated through diversification, these needs increase.
There’s a terrific new product just out called BRITE, (BRITEinfo.com) from the guys at Angus Performance Advisors (a subsidiary of Angus Energy). It enables you to quickly and easily see what is actually happening in your business, so you can take action faster. We’ve been involved in marketing it, and I’ve been extremely impressed by its capabilities.
“If you can’t change the people, change the people.” Craig Snyder, who is doing big things at Wesson Energy in Connecticut, first introduced this at one of our group meetings, and it’s worth keeping in the forefront. Craig has led a huge transformation of that company from a traditional oil supplier to diversified energy firm that also sells propane, general HVAC services, and is a leader in the home efficiency space. He has come face to face with the practical difficulty of getting members of his team to embrace a different kind of future. He’s responded by investing significant resources in training and communicating the new vision. And it has resonated deeply with many on his team. But not with everyone. And he’s had to let them go.
You can’t be afraid to change your people, if the people can’t, or won’t change. Several of our members ran headlong into this when they finally started evaluating their sales compensation plans, and realized they were legacies of a by-gone day. Sort of like a three martini lunch. Great to reminisce about, but it just doesn’t work anymore.
In each case, they ended up replacing between 75%-100% of their equipment or fuel salesmen. And in virtually every case, sales went up substantially.
You need to give your team the tools, training and time to evolve. But don’t underestimate how threatening change is to some people. The problem is that you cannot afford to stand still and accommodate their fear. Because the dangers of inertia are multiplying, and the wolves are at the door.