How Stalco Vacated an End Market to Achieve Sustained Growth

Whether a company manufactures aviation equipment or installs lawn sprinklers, few things give middle-market business leaders more satisfaction these days than tapping into new end markets for existing products or services.

However, for every new end-market success story inside the lower middle market, there seem to be at least three tales of woe — a loosely researched fact, perhaps, but one that makes the end-market tale of Stalco Construction of Islandia, New York, all the more worth the telling.

What also makes this end-market story one of special note is the fact that it was driven by an appetite not just for growth, but workforce survival, according to Kevin Harney, partner, principal, and CFO of Stalco — a $60-plus million firm that represents something of an anomaly in the construction sector inasmuch as it has grown steadily through the downturn while refusing to cut heads and at the same time expanding both its marketing and IT expenditures.

“Back in 2008 and 2007, 99 percent of our revenue came from Long Island school construction,” explains Harney, who says that the company realized that the only way to thwart the downturn’s bite and avoid a significant layoff would be to enter new markets. So rather than allow his people to hunker down within its school-segment stronghold — at the time producing close to $40 million in annual revenues — Stalco forbade them to bid on school work.

“We did this not because there weren’t new school jobs — there were — but because we wanted to keep our people employed,” says Harney, who adds that the firm, which employed roughly 31 employees in 2008, ultimately did not take on a new school construction job in 2009.

Stalco’s end-market maneuver — a hairpin turn for a firm of any size — is rather rare in the construction business, where business development is often built on relationships and the ability of a firm to address the unique concerns of a given customer sector.

“Most of the Long Island firms that continued to stay focused on schools are not with us anymore or are in bad shape,” observes Harney, whose new end-market plan involved the nearly immediate opening of a Manhattan office and a tenfold increase in marketing expenditures during 2009.

Harney believes that the firm’s vastly expanded marketing budget helped to put Stalco on the radar of potential new clients residing in a variety of markets, including commercial, industrial, retail, and healthcare/hospitals (where the firm now captures close to $17 million annually). “I never believed in marketing. I thought that marketing was just sales. Today, I know that marketing has nothing to do with sales.”

Today, about 30 percent of Stalco’s overall revenues are being driven by the firm’s Manhattan office, while nearly 55 percent of the firm’s $60-plus million in 2012 revenues were from customers outside of Stalco’s traditional Long Island market, in greater New York City, according to Harney.

“People always say not to burn your bridges, but there are times when you must, and I felt that this time we had to burn the bridge in order to get the commitment and focus from our people that entering these new markets would require,” explains Harney, who notes he gave four members of Stalco’s management team 6 months to begin garnering revenue from new target markets and another 6 months in which to make the markets self-sustaining, with their own profit and loss accounting.

Still, more important to Harney than the firm’s revenue growth and diversification is the fact that Stalco did not lay off anyone, but instead grew its workforce to 42 employees during the worst recession the construction sector has experienced within the past 50 years.