NCI CEO Dominick Guarino talks about the “Blue Ocean” of the HVAC Industry

About 10 years ago, a book titled, “Blue Ocean Strategy” was published by the Harvard Business Review Press. When I first read this book I recognized the things that we’d been doing at NCI for the previous 10 years were actually part of a blue ocean strategy. Our blue ocean was, and is, helping our industry become more Performance based.

A few months ago I read the book with new eyes, thinking about service and installation companies in our industry. It dawned upon me that by adapting a “blue ocean” strategy, contractors can differentiate themselves in their marketplace and provide products and services with little or no competition. They would also be able to charge enough to be very profitable, grow their businesses, and take good care of their employees.

Sound like a tall order? Let’s start by defining what it means to have a blue ocean strategy. The book’s authors define a blue ocean as an “untapped market space,” awaiting “demand creation, with the opportunity for highly profitable growth.” In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

A “Red Ocean,” on the other hand exists where, “industry boundaries are defined and accepted, and the competitive rules of the game are known. Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the ocean bloody.”

Sound familiar? For decades, our industry’s red ocean has been the “Low Price Swamp” where “dealers” are competing mostly on price, with virtually the same exact equipment.

The more successful companies have figured out how to still be profitable in the vast red ocean of the current HVAC industry by focusing on exceptional customer service, selling planned maintenance, and investing in training their people.

Our industry has over 50,000 contractors with recognized payroll, and unfortunately tens of thousands more one-truckers. Unfortunately, many distributors still sell to these jackleg outfits. This behavior will continue to encourage low-price selling as legitimate companies feel forced to keep their pricing low to compete with the Chuck-in-a-Trucks.

The more successful companies have figured out how to still be profitable in the vast red ocean of the current HVAC industry by focusing on exceptional customer service, selling planned maintenance, and investing in training their people.

Unfortunately, to typical customers a furnace, is a furnace, is a furnace. Improving soft skills and nice touches like wearing booties and surgical gloves will only get you so far.

Dramatic seascape at sunset, photographed from a boat during navigation. The “Red Ocean” depicted here is the opposite of the Blue Ocean strategy discussed in W. Chan Kim and Renee Mauborgne’s book.

The HVAC Industry’s Performance-based Blue Ocean

So where can you find your blue ocean? You actually don’t need to look any farther than the systems in the homes and businesses you’re already servicing. Although HVAC and Home Performance have been around for more than 20 years, the market for selling Performance-Based services and comfort system upgrades is virtually untapped.

Why have so few HVAC companies figured out how to tap into this extremely profitable blue ocean of business? I believe there are several key reasons:

1. Box swapping continues to be the KPI (Key Performance Indicator) for HVAC contractors — this is still encouraged by manufacturers, distributors, and most “consultants.”
2. Lack of strategy –  few companies have taken the time to study and develop the right performance-based business model for their company and market area.
3. Fear of the unknown – most companies feel out of their comfort zone in the blue ocean of performance-based contracting.
4. Trouble marketing their newfound skills to homeowners – the strategy involves marketing a different level of service and maintenance, and generating leads and sales for system improvements through those performance-based services.
5. Lack of good systems and internal training to build performance-based services into the company culture — success is dependent on every area of your company being on the same page, including dispatch, field personnel, sales, operations – all starting with your company’s leadership.
6. Absence of a profound belief that once you understand and have learned the right way to install and service your customers’ systems, providing the safest, healthiest, most comfortable and energy efficient home in the most affordable way, you could never go back to box swapping and parts changing again.

Now, you could look at these six challenges as negatives and problematic, or you can look at overcoming them as your keys to achieving your blue ocean strategy. Maybe you’ve already dipped your toes in these new waters. Perhaps you’ve even paddled just past the shore, trying to get through the bloodied waters of typical HVAC contracting, but you haven’t been able to yet reach the clear blue ocean, just on the horizon.

Wherever you are, the good news is, there are plenty of blue seas waiting to be explored and charted.

Dominick Guarino is CEO of National Comfort Institute (NCI), (www.nationalcomfortinstitute.com), one of the nation’s premier Performance-BasedTM training, certification, and membership organization, focused on helping contractors grow and become more profitable. His e-mail is domg@ncihvac.com. For more info on Performance-Based ContractingTM  go to WhyPBC.com  or call NCI at 800/633-7058.