Symbiot Restructuring:
Are They Now 'Out of the Woods?'
by Ranger Kidwell-Ross
In addition to its minor role in sweeping, Symbiot Business Group is the #2 national consolidation company selling landscaping services to major national retail chains. The company's network of landscape providers had a 2004 combined sales of over $1.1 billion.
In this interview Symbiot's CEO, Mike Edwards, discusses why his firm recently had to reorganize, what this means to contractors who are still owed money for sweeping and other services they've done, why he believes Symbiot's model is a sound one, and his company's plans for the future.
We recently received an inquiry from a contractor about his relationship with Symbiot, one of the 'consolidation companies' active in the U.S. For those of you not familiar with that term, it's widely used to describe the different companies that are increasingly contracting with large, national retail stores and, to a lesser extent, mall management companies, to provide a wide range of services that often sweeping.
The concept is to reduce the amount of paperwork, invoices, etc., required by the chains in order to keep their pavement, landscaping, snowplowing and exterior area maintenance needs handled. The consolidators arrange for local/regional service providers in each of the geographic locations, then deal directly with the different retail organizations in terms of paperwork. In theory, the system would appear to have merit.
As with most startup business models, however, there have been a variety of 'hiccups' in the actual implementation. Problems include lack of oversight and a penchant for requiring contractors to discount their service prices to, in some cases, below actual costs. This latter often creates 'churn' as low-bid contractors drop out to be replaced by another that doesn't know they're actually working below cost.
At the same time, the consolidators often require increased record-keeping by the contractors, since it's relatively more difficult for the consolidator to make sure the various contractors they hire remotely are doing a good job.
Another big problem -- one that's surfaced several times to date -- is that contractors are actually under contract with the consolidator, even though they're doing work for their local chain stores. As a result, the contractor is counting on the consolidator both for payment to them and for promptly collecting from the stores. Sometimes one or the other of these doesn't occur. Unfortunately, contractors are also completely at the mercy of the consolidators they work with to keep them informed about any 'blips on the radar.'
In this particular instance, the Utah-based company whose CEO interview comprises the bulk of this article, Symbiot Business Group, clearly did not have its corporate eye on the ball. Symbiot management let receivables go past 120 days in some instances, with no notice to the contractors who were actually doing the work. After several months went by, all the contractors knew was that they weren't getting paid in a timely fashion.
Of course, virtually no individual sweeping contractor would continue to do work for a client who didn't pay after even 60 or 90 days. The only reason they did so in the instance about which you'll read is because of their faith in the strength and management of the Symbiot management team. As it turned out, that faith was betrayed.
In this particular instance, the way the Symbiot organization dealt with its receivables and other management problems was to, essentially, declare the bankruptcy of two of its corporate entities. Although business continued, it did so through new, similarly-named companies it started up. Contractors owed money by the old companies, including a handful of sweeping contractors, will have to settle for whatever amount on the dollar is left over in the process.
Since, in most instances, consolidator contracts clearly state that the contractor is doing work for them, not the local stores actually being serviced, then there's usually no recourse available to go after the local stores for any payment owed. In a previous scandal in 2003 that was similar, though, Target Stores made good on what was owed to its sweeping contractors when the consolidator it had hired went under.
Mike Edwards is CEO of Symbiot, a position he has held for about a year. Appearances are that Edwards was brought in to handle the Symbiot reorganization. Here's a link to the official company press release that describes what has occurred in that regard.
During our conversation, Edwards exuded a confidence that the actions Symbiot has taken under his direction are A) the only thing that could be done, and B) the way to ensure a strong and viable Symbiot organization going into the future.
Edwards: We shut down our two operational units that were in trouble, rather than having them get stretched out further and further in terms of payables. We did that so we could have a way to distribute whatever payment we could to the contractors involved," said Edwards. "In due course that should happen, probably over the next four-to-six weeks.
Are the contractors going to get paid? Yes, as long as they follow the process that's been laid out for that to happen. Will it be 100%? I'd be guessing to speculate on that. It will be a function of the claims that come in, as well as the final asset value of the companies that have been shut down. We still have ongoing collections with some of those accounts.
One of the problems we had in management of those two companies is that they had a number of accounts that were more than 120 days out on payments to us -- with a few that were out much further than that. Our restructured organization will not allow that sort of thing to happen again.
WORLD SWEEPER: It's distressing, from an industry perspective, that your management team would let receivables go much further out than any individual sweeping contractor would consider doing, yet not even notify the individual contractors so they could suspend services. This is especially true since the contractors had, no doubt, been required to cut their pricing to the bone in order to get the work in the first place. Now, your company's response is to simply shut down under one name, re-incorporate under a slightly different name and continue on. The sad fact is that the contractors are the ones who appear may be left with only partial payment.
Edwards: It's a fair statement to say that the two companies we shut down were underperforming by just about any standard you'd want to use to measure them. That's why I came in here was to get them back on track. Although we put $6 million into those two entities in an attempt to get them caught back up, it became clear that another $6 million or more would be required to bring them back to an acceptable level of operational stability. The only available option was, basically, to shut them down and liquidate the remaining assets while there were still assets to be liquidated.
The new operating company does, in fact, operate as an integrated service company with multiple services. It has a much tighter structure in terms of receivable requirements and so forth. In fact, the things you're talking about are pretty much standard practices for how the new company operates. We do suspend services for non-payment, something we've done as recently as this past week. However, that structure was, unfortunately, not in place in our previous organizations that have been shut down.
There are only a handful of sweeping contractors that are affected; most of the affected groups were snowplowing companies, because one of the firms we shut down was one we acquired with problems. There are also a larger number of landscaping companies affected."
WORLD SWEEPER: Let's address your service pricing for a moment: I would hope that you're going out to your prospects for consolidated services and telling them how much you can save them in terms of paperwork and related costs. Unfortunately, many times I have heard that consolidator companies also promise reduced service costs by the contractors, as well. Since you are, in actuality, adding yourself in as a middle-man, and because the competition in parking area sweeping is so fierce, requiring a long-term sustainable reduction in pricing simply isn't possible.
What you end up with are contractors who don't know their costs and who are unable to provide you with long-run service. This creates what might be called the 'churn' of replacing contractors all the time, which is an added cost for you, and also contributes toward driving sweeping and other contractors out of business. What is the Symbiot response to that?
Edwards: I'm pleased about the way we operate in that regard. What you describe is more typical about how a U.S. Maintenance or Site Stuff operates. They tend to aggregate and then commoditize the service. What we do is to, first, consolidate, but do so by looking at the scope for the customer. We look to the service levels that are currently in place. We have found that individual locations tend to over-specify on their service levels, and that's an area where we can help. We offer value engineering so that the chain stores get the largest, most needed amount of services for whatever they spend.
Then, we cut out all of the administrative costs associated with managing thousands of types of small contracts. The internal processing costs per contract for most large companies is about $100 each time payment is made. We try to eliminate the adminstrative piece. We also try to provide more density for our service providers to they can optimize their crews, as well as schedule their routes more efficiently, which can lower their 'windshield time' between service stops.
We try to get contracts in areas that offer densities, and turn down business where there is no density improvement offered. We need to have a certain density of business in an area or a state in order to make our system work. If we can't get density, we often no bid. Density is important to the contractor side of the equation, as well.
WORLD SWEEPER: We have received a number of reports where contractors have been requested to provide service bids for different consolidator accounts. Then, when presumably the low bid contractor is re-contacted by the consolidator, they are asked to reduce their already low bid by, say an additional 25%. What is your comment on this?
Edwards: We'll typically go to a contractor with a target number we feel can be hit. We offer improved site density in their area and a reduction in administrative work to make that do-able. We understand what their direct costs are and are not seeking to reduce their pricing to a non-sustainable, non-profitable level. What we are trying to do is to cut out a lot of the administrative requirements and improve our contractors' route utilization to keep their routes profitable. We don't want to manage a system with 'contractor churn' since this makes quality go down pretty quickly.
WORLD SWEEPER: A critique I've heard of your particular organization is that the contractor needs to belong to your 'buying club' in order to make more money with you. What does this consist of?
Edwards: We bring what we call a 'Purchase Power Program,' or 'P3,' to our partners/members. As they become a member of the Symbiot network, we put in place a purchasing program that gives them buying power for standard replacement items used in their industry. We'll also bring in some general products like Nextel/Sprint or other types of products or services that cut across all contractors' needs.
As an example, we just announced for our landscaping partners an equipment discount program with Toro. The P3 program gives our members some additional value when they work with us. The third layer of our model is we do training and webcasts designed to help on the management end. These include periodic meetings at shows, where we bring in people who speak to the economics of their businesses. Our goal is to add the greatest value we can to our members. At the moment we don't have many items targeting sweepers, but we are actively working on this. Sweeping is one of our newer networks, so developing P3 value for them is still ongoing.
WORLD SWEEPER: What would you tell the sweeper contracting community that would instill confidence in working with the 'new' Symbiot? Right now, it appears that at least one sweeping contractor will be getting less than 100% payment from you even though he did 100% of the work. Although the Symbiot organization is ongoing, the particular branch of the company he was working with is now, essentially, in bankruptcy. In addition, without notice from Symbiot he tells me he had his contract taken over by another consolidator. Why should he or any other sweeping contractor have confidence in your company in the future?
Edwards: Our entities that were not profitable have been shut down. That's unfortunate. However, the entities that are in place today are working, and doing so very well. We are growing and all financial indicators, including collections and payables, are very good. Currently, our average check goes out to our contractors in 32 days. Unfortunately, to get there we had to go through the pain of shutting down the part of the organization that was not working.
WORLD SWEEPER: Where does Symbiot rank in terms of consolidation companies in the sweeping industry?
Edwards: If we are in the top ten, we're barely in that position. However, I would expect that in the next two to three years we'll be in the top five. After that, I think we'll be in the top three. We believe we can be a leading provider in all of our target areas, based on the type of properties we serve. In addition to power sweeping, these include snowplowing, landscaping, handyman, locksmith, sealcoating, striping, patching and pest control.
WORLD SWEEPER: Where do you expect to attain your growth? Do you see your company taking business away from current consolidators, even though many probably are now offering lower pricing to their customers, assuming they don't have your same, more benevolent, business model? Or, do you think the majority of your new national accounts will be large firms that now contract on a one-to-one basis with individual contractors?
Edwards: We're seeing significant contractor churn from a number of the current consolidation companies, along with resulting quality difficulties. Since most all of them have a 30-day cancellation clause, it's relatively easy for the national customers to move their service to us, where that situation isn't occurring. The customer wants good quality service at a competitive price, but not a commoditized 'low cost leader' pricing schedule.
I think the model we have blends the best features of consolidating as well as still trying to meet the needs of the subcontractors in the various service lines. Along with this we offer the training and purchasing power aspects, as well as meeting the customers' need to simplify and hold a sustainable, predictable cost for these types of services. It not only works very well for our customers, but also works very well for our supply chain around the country.
Mike Edwards, CEO of Symbiot Business Group may be reached via email sent to medwards@symbiot.biz. The Utah-based company's main contact number is 801-307-0730.
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