Wednesday, June 19, 2013

Janitorial Subcontracting For Beginners - REALITY Exposed!

The commercial cleaning business has had several decades of misleading stories in a variety of business opportunity magazines. “Get rich quick,” “no experience necessary,” “no start up money needed except purchasing a broom and a mop and a vacuum cleaner,” and “easy money” scream the headlines. This is followed by a glowing testimonial from someone who became rich in the cleaning business. 

The fact is that in the 1980s there were only 19,000 commercial cleaning companies in the United States, but by 2011 that number had grown to 127,000 companies. Entering onto the scene are cleaning service owners who have discovered that it's not as easy as they thought but that it is better business to tell other people that the cleaning business is easy, resulting in a flood of more disinformation confusing thousands of hard working, honest people in search of the American dream.

Add to the mix a few hundred commercial cleaning franchise companies who are not really in the cleaning business at all but are in the business of selling cleaning franchises. Some franchise companies promise untold riches in commercial cleaning and for as little as $500 you can have your own piece of a recession proof, essential service in an industry that grows and grows forever into infinity, a never ending fountain of cash.  

At some point, however, reality rears its ugly head and thousands of honest people discover that there are no quick riches, competition is fierce and the money is not easy. By then, it is often too late, and thousands of cleaning service owners find themselves needing to clean for whatever money is available. So entering the world of janitorial subcontracting appears to be a lifeline to survival. 

This world of janitorial subcontracting is a cloudy one of more empty promises, but this time these promises are made to the folks who are the end users - the facility and property managers whose job it is to keep their buildings clean. They are sold a story about quality service, the ease of just one invoice, highly trained specialists, the finest equipment and all for less money than their previous service provider no matter what the price was. 

I knew a veteran of the janitorial subcontracting game on a national level and his sales pitch to national facility managers was very simply "whatever you are paying, I can do it for 10% less".  It didn't matter what they were paying he was going to provide "top notch" service (...wink, wink, nudge, nudge) for 10% LESS. He was highly successful, but I don't think he ever sold a service contract for more than the previous cleaning company no matter how dreadful the service or how low the price. He could do it cheaper.

He was successful because no matter what the price was, he made 25% off the top and threw the entire cleaning program to a subcontractor for 75%. Due to the reality of the marketplace for small independent cleaning services, there was a never ending supply of subcontractors for whom that 75% provided an illusion that they owned their own cleaning business. They are business owners, entrepreneurs, captains of their own fate – or so they believe. 

I entered the cleaning industry as a young engineering student and immediately understood that there was some basic math involved. Area (square feet of space) divided by production rate (how long it takes to perform a given task) equals time (hours of labor). I had been in the cleaning industry for many years before I stumbled into the world of janitorial subcontracting, and I didn't like it at all. Quality service delivery was not a management science that could be measured, quality was merely a slogan. A nebulous, feel-good, absolutely empty word, devoid of any meaningful content. This was not the same cleaning business I knew at all. 

One problem contributing to the situation was the number of facilities of the client companies - these end users had hundreds and even thousands of locations that needed to be cleaned, and they didn't want to deal with hundreds or thousands of cleaning services. The control of the cleaning could no longer be trusted to the local branch or store manager as they once were. The discounts available by having one company "clean" all their locations were so large that they had to pay attention. Many firms know the abuses that go on and try to limit them by specifying self-performing service contracts only, no subcontracting allowed, but many others don't know the game or turn a blind eye, exposing themselves to the liability and hoping they don't get caught. 

The stage has been set, resulting in national clients with thousands of locations being "serviced" by "cleaning management" companies who make a set percentage off the top of ANY amount negotiated with their clients, who in turn subcontract out the actual cleaning work to thousands of small local cleaning operators desperate to clean anything at all. 

But the plot thickens further with enterprising subcontractors figuring that they want their piece of the pie, so THEY subcontract THEIR locations to yet another subcontractor BELOW them, take their cut off the top off the fee they receive and avoid taxes and insurance, recruiting, hiring and training. I have seen arrangements like this going three, four and five subcontractors deep. At the bottom are undocumented immigrants, payment schemes with Visa/MasterCard gift cards to avoid I-9 reporting and phony Workers Compensation and Liability Insurance certificates doctored up to look like the real thing. (My favorite ones were those where the insurance company names are made up).

Honest maintenance management companies simply pass up national prospects who require self-performing cleaning services, do not hide the fact that all work is performed by subcontractors and then work as best they can with check and balance systems to maintain quality levels. I worked for companies such as this and subcontractors can do pretty well with these companies so that service levels to the end users can be high. 

So why does the guy who started and runs the Janitorial Subcontracting Network on LinkedIn, the first and only free and open market for subcontractors and contract holders to connect, blow the whistle? 

For several reasons, the first being what LinkedIn has become, a single platform where 800,000 buyers of cleaning services are all in one place. I am seeing very astute national facility managers join the Network and they are quietly watching what we are doing in here. 

Second, the Janitorial Subcontracting Network has become a lifeline to survival for hundreds of local cleaning service owners while at the same time honest maintenance management companies have a resource to staff buildings in remote locations with reliable subcontractors.

Third, I have been in the position of having to find subcontractors from very long distances myself, and I would have given anything to be able to find reliable subcontractors through a resource like this (we now have numerous national companies who rely heavily on this Network to find subcontractors).

Fourth, subcontracting in the US is going to grow as Washington DC's healthcare scheme takes effect while at the same time several commercial cleaning franchise companies use subcontractors where they have areas to staff that they have not sold unit franchises in yet but have sold services to large multi-location clients. Additionally, the courts and other government agencies are chipping away at some of their businesses due to unscrupulous operators and abuses.

Fifth, I am carefully considering the direction to take the group with a few elder statesmen of the cleaning industry whose judgment I have learned to trust. I want the Network free and open but I want the abuses to be curbed without policing anything (beyond having spammers in the group taken out back and beaten senseless).  

Maybe loosely banding together and having a presence at PRSM (the Professional Retail Store Maintenance Association) or ISSA (Worldwide Cleaning Industry Association who, by the way, have been VERY supportive of the Janitorial Subcontracting Network). This Network is approaching the number of cleaning companies who are members of BSCAI (Building Service Contractors Association International) and at present growth rates we will surpass their number before the end of the summer (..... shhhh, they haven't figured out we are here yet). 

I have begun to reach out to chemical and equipment manufacturers and distributors, possibly securing group discounts for the members along with their valuable training programs. I have always found manufacturers and distribution companies to be highly valuable partners. 

Anyone left who I have not infuriated with this post? So having set the stage and exposing the reality, let's cover the basics as promised. 

1. If you are a cleaning service owner who works subcontracted accounts, they are not yours, you did not sell them and you will NOT build a healthy company unless you keep your subcontracts to 25% of your total company revenue. The profit margins are just not enough to build a healthy business with. You will have to sell your own accounts and in the interest of full disclosure, this is what I do for a living so I can show you how to get your own accounts. 

Be prepared if you are subcontracting to have ALL of your insurance coverage, pay all your employment taxes and utilize E-Verify. If you are approached by anyone who does NOT require you fill out a substantial package of agreements and documents, you are going to be ripped off by whoever has approached you. 

Never accept a subcontract from any company who does not hold a contract with the end user's building. Your chances of being ripped off are VERY high. A subcontract from another subcontractor is pretty close to worthless and is offered to you in violation of either agreements with end users or at minimum best industry practices. 

2. If you are a contract holder, a cleaning/maintenance management firm, a franchise company using subcontractors to bridge unit franchise sales then PAY YOUR SUBCONTRACTORS ON TIME and no funny business if the contract is lost. I will elaborate on this point in a moment.

To small subcontractors, cash flow is king. Even if you have a skinny deal, many times frequent payment terms will give you quality service and a fiercely loyal group of subcontractors. One of the firms I was with paid subcontractors weekly and their buildings got top priority with as close to zero service defects as one can ever hope. One of the best companies I ever encountered paid subcontractors on a DAILY basis - not only do they have a waiting list of subcontractors wanting to work with them, their quality levels are incredibly high. 

Insist your subcontractors are following labor laws and are not subcontracting out the work you have assigned them. This is not easy, I know, but are you willing to risk your company's reputation, expose your clients to liability issues and lose a 1,000 building account because one subcontractor is playing games? Having a zero tolerance policy against sub-assignments and then a few spot checks for compliance will pay off in the marketplace. 

Hoping this is a wakeup call for you, as the internet has enabled news to travel faster than ever, so a good reputation can be built over a shorter time than before OR a bad reputation can be made in a few hours. Don't believe me, check the Janitorial Subcontracting Network discussion on a very large service provider who got one little post from one little subcontractor on a board called ripoffreport.com. Because of how search engines find things on the internet, it's possible for your company to be found FIRST on a board like ripoffreport BEFORE your own company website. 

Finally, if you give work away and no one can ever make a dime at it, prepare to have problems. That whole strategy about making it up in volume has a very definite dollar floor. Gasoline, minimum wage rates, taxes, insurance ALL have minimum dollar amounts and front line cleaners have lives that don't include working a 45 minute shift.   

3. Facility/Property Managers - there is no Santa Claus, and you have calculator sitting on your desk. Simply do the math. How can you tell when a sales person is lying...you KNOW the punch line. How much have you really saved when an ICE raid hits the evening news at one of your locations and then all night long that raid gets coverage as a teaser followed by "more news at 11"? 

The facility management department of a very large company with several thousand locations purchased bidding and estimating software so they could reverse engineer the dollar amounts of the proposals they received. It substantially slimmed down the number of vendors they dealt with and at the same time improved the quality levels of their cleaning. 

CONCLUSION: Janitorial Subcontracting is here to stay and will expand in the US. The abuses need to be curtailed and knowing all about the game is the first step toward that end. Despite four attempts to monetize the only free and open network, the Janitorial Subcontracting Group on LinkedIn will REMAIN FREE AND OPEN until I get my Elvis Presley tickets (EVERYONE gets tickets to see Elvis one day). The Janitorial Subcontracting Network is going live this week on Google Hangouts so get yourself a Google Plus account and come let's meet live to discuss. 

June 19, 2013
Happy Juneteenth!
Ed Selkow




26 comments:

  1. Ed, great information. The part about paying subs on time is excellent advice.Most of my work was self performed but when I used subs I made sure they were ALWAYS paid on time. I got the same result you did. If I needed something extra from a sub we got priority because they knew the money would be there as promised.

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  2. Lovin this one Ed. I know from experience that subcontracting with these companies will push your family into bankruptcy. They pay every 90 days. How's that for waiting and trying to feed your family, let alone using and purchasing your own supplies and equipment.

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  3. Bravo, Ed ! with no Monty Python references.

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  4. Hi Ed!
    It's a beautiful and very informative article.. Infact, following the guidelines you have provided, I am positive that success is achievable. A lot of points I was not aware of until now but Thanks to you for increasing my awareness!
    My request to you is that Could you please work on Canadian janitorial Industry too, and if somehow could post Canadian janitorial contracts on your website, it could open doors to great success for small janitorial companies like us.
    Name: Plutoplanet Can Building Services
    E-mail: Info@plutoplanetcan.ca
    Ph: +1(780)655-8438
    City: Edmonton, Alberta
    Thank you So much ED!
    Durrani.

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  5. Ed. This is an amazing article/ blog. I could not say it any better myself. You are so much more involved and active on this, as I would like to be. I feel like I should apologize for being so far behind on everything, but I'm busting my butt about 10 -12 hours a day, and have limited time left for all of this fun stuff. This article should be spread nation-wide for everyone to see. I'll do what I can. I'm also going to email you later about some ??'s I have pertaining to things mentioned here. Thanks again for all you do.

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  6. For anyone who is clueless about the structure of large cleaning accounts, sub-contracting, and it's evils will gain clarity here. No more than 25% of your contracts should be sub-contracts.... Nice!

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  7. Wow what an eye opener. I always knew that some contracts went a few levels deep but not to the extent you pointed out. Some of these contracts must pay fairly well starting at the top, especially if a contract can support that many leachers. Very enlightening!

    thanks
    Steve B.
    member of Janit. sub. network

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  8. WOW that was a great read!!!

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  9. Ed, you and I have discussed this issue before and I applaud your candor for the whole industry. As stated just prior, make your move to Canada, we have the same questionable practitioners and could definitely use a resource such as the Janitorial Subcontracting Network. We self perform most jobs and are always trying to establish strategic alliances. The crucial point here is honest communication, if I need another company to assist me, they go and do the site visit with me , provide me with their quote and I'll add my percentage on that. They make a profit , I make a fee and both parties are happy. This is why i call it a strategic alliance and not sub contracting.

    Thanks Ed.

    Bill Dalgleish

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  10. this is a nice article Ed, I think I have an understanding of your long term goal, but everything is heading into opposite spectrum of scaling as mergers, and acquisition are the norm in global economy. You must believe that business platform is cyclical and things will go back how they were in the good old days. I just don't see it, but I support your cause.

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  11. Great article Ed. Your words reverberate knowledge, experience and wisdom.

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  12. Well said Ed!
    Having been in just about every aspect of the cleaning business I can attest to your accuracy.

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  13. What you're talking about is vertical integration from a service perspective. This has been around manufacturing since the 1920's. How it's managed is the key. I agree that there are risks with incorporating this philosophy of subcontracting, but as you allude, it all depends how it is managed. From my experience, what you didn't really hit on was the training, and quality assurance issues that you are faced day in and day out incorporating this game plan. Unfortunately, it almost needs to be micromanaged to be effective and then you get into the cost issue, or on the other hand you rapidly lose your large customers very, very quiclky. I have experienced first hand this concept and it is like most business practices. If it managed effectively, it will work, if not, obviously it won't.

    Many times you see the business pendulum swinging one way and everyone jumps on the band wagon, and over time it swings back. Like most practices there will be a happy medium over time.

    As far as supply issues, it might be worthwhile starting a network of jansan distributors that can offer discounts and the ability to supply a large range of products. Whether this is the forum or not, I'm not sure.

    Good Luck!

    Jim Munch
    Janitorial Depot of America, Inc.
    321-242-2110

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  14. Excellent article, Ed. You did an outstanding job educating both vendors and end users on the challenges and abuses that are showing up due to the subcontracting trend. As the owner of a 25 year old service provider in Florida, we have been approached many times about subcontracting on projects and we spend a lot of time researching and vetting the companies we choose to do business with. The internet has proved to be very valuable tool as disgruntled subcontractors are quick to vent their anger on-line. Ed, thank you for taking the time to address this issue and for all your efforts to help the cleaning community with this forum.

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  15. As a 25 yr. Contractor with a balance of employees and Sub-Cs I applaud you Ed... Nice read

    Gina G

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  16. I have only recently started my firm after years of hemming and hawing and I am already seeing these subcontractor abuses as such I have chosen to not work as a subcontractor as yet.

    Stumbling on this blog has proven to be an enlightening experience and I look forward to learning much more as i go.

    Thank you Mr. Selkow.

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  17. Brian Smith/Clean SmithsJune 20, 2013 at 5:37 PM

    I love this! I really appreciate and admire your professionalism and thank you for sharing your knowledge with us. It's really hard to find true professionals in any profession anymore. Thank you!

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  18. Great article Ed! My father made the switch from employees to subcontractors over 20 years ago. His original motivation was trying to find a way for good people to make more for their efforts. I really feel for those I meet that have been ripped off by other unscrupulous BSC's and franchise operations. It was drilled into my head over them many years I worked with my dad that people were only as dedicated as we were to them, in both support and finance. Never play with the money, and our people get the first dollar.

    We pay our different crews every two weeks, and never miss a payment. We also don't take any "filler" jobs. If they don't meet the monetary requirements to be a viable client, we just don't bid the job. By working this way, I am honored to have people that have been with us going on 17 years now. In fact, I can't remember the last time a crew quit! I believe this is because we pay extremely well, and provide the support our contractors need to help them succeed.

    I appreciate this article. I've been preaching this to anyone who will listen for years. I especially like your address to our potential clients. It's amazing how people really believe they can get more for less. For Pete's sake, this ain't WalMart, and we are selling widgets. We provide services, with people who must be paid, and there are performance metrics that just simply can not be ignored or glossed over.

    Maybe you should've mentioned to our potential buyers to not read the manufacturers specs either. When they list a vacuum sweeper as being rated for up to 10,000 sqft an hour, that doesn't really work in the real world with rows of cubicles :)

    Always enjoy your articles...

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  19. Ed,
    Very insightful and right on point.

    Tim Rail
    CMR Alliance, LLC

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  20. Well said sir. I am in the distribution side of the business and it almost makes me cry when I have these sub sub contractors come to me making 6/hr and needing to now buy supplies and don't know what to do. Many as mentioned don't been know how to maintain or strip and wax a floor so I go in and train these guys that should have been trained by the franchise owner.

    I have noticed a small change in the market place here in Ottawa that store owners are starting to get smart and realize that the one stop shop is not in their best interest and are looking to go local when they can. Hopefully this is a trend that continues and we can see some hard working contractors make what they deserve.

    On a final note Ed you mentioned about working with local distributors and help in sourcing and training please feel free to contact me at any time as I love working with the small guy trying to make it. And unlike a sub-contracting firm I make money when the contractor is successful and now buys his equipment and chemicals from me. So you could say its in our best interest to help the contractor be successful

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  21. Hi Ed, excellent article! I am a cleaning business owner (for 15 years) in Australia and the same thing happens here to sub-contractors, it appalls me to see larger cleaning companies put on sub-contractors and pay them below standard wages, they also push subbies to do a large amount of work in a small time frame, leading to a poor standard of cleaning.
    I have seen large companies put on illegal immigrants so they can use and abuse them. I believe the cleaning industry is largely unregulated and this really needs to change.
    I have four subbies working for my company and I look after them, I pay them well and they look after me. Thanks again and I look forward to reading more of your articles.

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  22. Hello Ed. Your article was spot on. I can relate to what it is like subcontracting from some of these national accounts. Case in point, one large janitiorial company recently acquired a number of banks here in Canada. I was approached to see if I would be interested in subcontracting from them. I was "told" I would receive a grand some of .10/square feet!!

    And for that priveledge I would be responsible for my own insurances, supplies, equipment and yearly stripping and waxing and carpet cleaning. How lucky I was.

    And these companies ie banks that contract these large cleaning firms wonder why they do not have quality work and end up going with another cheap company less then 2 years later. Its a joke. I am all for exposing these companies and helping other independent cleaning companies avoid these pitfalls.

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  23. Profound Ed, I've been party to some of those national contractors and you are absolutely correct. Thanks for putting this out there.

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  24. Great read Ed! Once again, you hit it out of the park. We are blessed to have you!

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  25. Excellent well spoken and very informative article. Being an independent cleaning service provider, my company has shunned away from many subcontract opportunities because my GM and I felt we'd literally have to pay minimum wage to get the job done only to net $100 for the company per month. Now the I know the rule of thumb on subcontracting, we will be better equipped moving forward

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  26. Ed! Superlative writings and information as always!

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