Interior Renovation Company
Interior Renovation Company
431 Lyme Circle
St. Louis, Missouri 63101
Mary Green, Andrea Hibbeler, Bryan King, and Arilova Randrianasolo
We are a minority-owned general contractor and carpentry subcontractor, based in St. Louis, Missouri. We specialize in commercial interior renovations.
Until recently, workforce diversity was not a priority in the St. Louis construction industry. This changed when Governor Matt Blunt issued his 2005 Executive Order, establishing goals for minority business utilization. Unfortunately, many minority-owned businesses have taken advantage of this good-faith effort by entering the market with intentions only to turn a quick profit and not to create a sustainable company. As a result, finding reliable, minority-owned contractors has become a challenge within this industry.
Addams Interiors was created to satisfy this demand. We are a minority-owned general contractor and carpentry subcontractor, based in St. Louis, Missouri. We specialize in commercial interior renovations. Our customers will have the confidence that projects will be completed to their standards and in adherence to all safety requirements.
Although the economy has slowed, the revitalization efforts of downtown St. Louis have stabilized the market for interior renovations. According to the Downtown St. Louis Partnership, since a Development Action Plan was adopted in 1999, over $4.6 billion was spent or committed to projects, with over $900 million of these jobs currently in development.
Federal and city tax incentives are strong motivators for developers to utilize minority-owned contractors to complete their projects. In order to receive these benefits, developers must submit an approved subcontractor list to the proper officials. This increases the appeal of working with committed minority-owned contractors.
In our first year, Addams Interiors projects to reach $1 million in sales with positive growth in the years following. Maintaining low overhead costs enables us to achieve profitability starting in our first month of operation. Startup funding needs have already been met through personal savings of the owners and generous outside contributions.
We realize that in the construction industry, networking is vital to success, especially for an emerging company. We have already formed a valuable alliance with Rosen Contracting, who is mentoring us through the start-up phase and going to subcontract us our first job.
The purpose of this plan is to demonstrate our competence and present the opportunities in our industry. We have a solid understanding of our core competencies and are now looking to network with customers and industry professionals who share our values of commitment, integrity, and responsibility.
Addams Interiors is committed to the customer in every job by providing the highest quality of work 100 percent of the time. Five years after its inception, Addams seeks to have 70 percent of its revenue earned from jobs the company wins as a general contractor, rather than from minority set-asides.
- Commitment to safety and our work
- Integrity to treat our employees and customers equally
- Responsibility to give back to our community
Four walls that set the foundation for Addams' success are the customer, quality, our work, and partnerships.
Addams must always remember to focus on the needs of our customers, who lay at the heart of our business. We perform our best work for each customer so as to build long-lasting relationships within the construction world.
We must never lose sight of our central tool to success: the focus on performing the highest quality work within the industry. Addams Interiors does not believe in cutting corners or taking shortcuts. We intend to do everything in our power to provide the greatest degree of excellence and superiority in service to our customers, regardless of the size of the job.
Our Work is Our Own
Simply put, Addams must be able to take pride in the work we perform. We strive to positively imprint our name into the minds of every customer. Completing the projects we have been awarded with our own skilled team of employees will ensure high-quality work and satisfied customers.
Addams respects other firms in the industry as both honorable competitors and as valued clients. Our mutually beneficial relationships offer distinct interaction and teamwork between traditional competitors. At Addams, we consider our competitive partnerships to be a resource vital to the success of both companies.
Addams Interiors is a minority-owned interior general contractor and carpentry subcontractor, offering a comprehensive range of services for the commercial interior renovations market in the St. Louis Metropolitan area.
Our primary activities include pre-and post-construction services, which consist of demolition and clean-up of each job site; general construction services, which entail all interior components (i.e. ceilings, doors, drywall, insulation, millwork); and carpentry subcontracting, which allows the customer to choose specific duties they would like us to perform. Other services we offer include project management and supervision, which relieves the customer of project completion and on-site managerial responsibilities. An Addams project manager keeps in close contact with the client, offering progress updates as well as an outlet for questions and concerns the customer may have. We also take care of estimating and purchasing to ensure the right materials are selected and on site when needed, to avoid unnecessary delays.
Furthermore, we offer work order and purchase order management, which allows the customer several payment options with little or no paperwork, job cost reporting management to ensure there are no hidden fees or misspent money, and full accounting and administration services.
Not all of these services will be used during each job. Generally, larger jobs may require the use of more services due to the manpower necessary for a timely completion.
Addams Interiors will employ its own construction teams, comprised of three equally important, union-supported employee groups:
- Carpenters—This principal field of Addams employees consists of skilled apprentices, journeymen, and foremen, finely trained through the Carpenters' Joint Apprenticeship Program (CJAP) by the Carpenters' District Council of Greater St. Louis and Vicinity. On our jobsites, carpenters are responsible for hanging drywall, insulation, and performing a variety of other installations.
- Laborers—Laborers belong to the Laborers' Union of St. Louis. They are responsible for initial demolition and post-job clean-up services.
- Tapers—Tapers are members of the Painters' District Council No. 2. After the carpenters have installed drywall, the tapers come through, sealing and finishing the joints between drywall wallboards, thus creating a finished wall or partition.
Union membership will provide Addams Interiors with many services that will help us attain our quality and service goals. The unions provide complete drug testing, superior training, and a comprehensive benefits package for employees, including health and dental care, retirement plans, and vacation stamps. At Addams, we believe that the satisfaction of our employees will transfer to the satisfaction of our customers. Belonging to the unions will help our business as a whole because customers tend to look to union businesses to fulfill their construction needs. Our specialized training and strict Occupational Safety and Health Administration (OSHA) compliance will give customers the confidence that their projects will be completed safely and in accordance with their standards. All of our carpenters, as a requirement, have graduated or are continuing their education with the Carpenters' Joint Apprenticeship Program (CJAP). This ensures that our employees are knowledgeable in their fields, enabling Addams to perform work of the highest quality.
The Occupational Safety Hazard Association plays a significant role in the construction industry. The purpose of OSHA is to set and enforce guidelines in an effort to decrease workplace accidents and injuries through preventative measures. Following these measures closely will be one way Addams
Interiors can fulfill its promise of offering its customers a superior service. There are seven introductory steps for construction companies to follow to ensure compliance with OSHA regulations:
- Review introduction to OSHA practices. The following practices and equipment fall under this category: Fall protection, Electrical, Stairways and ladders, Trenching and excavation, Scaffolding, Motor vehicle safety. All areas pertaining to an employee's work must be addressed. Each employee should be trained and provided with literature regarding safely conducting tasks falling under these categories.
- Review secondary areas of construction. As with step one, any category that a company employee may encounter must be discussed, including: Personal Protective Equipment, Steel Erection, Hand and Power Tool, Fire Safety, Concrete or Masonry Products, Hazard Communication Standards, Welding, Cutting, Brazing, Cranes, Derricks, Hoists, Elevators, Conveyors, and Residential Construction.
- Survey workplace for additional hazards.
- Develop a jobsite safety and health program, which usually includes accident prevention seminars.
- Train employees on the matters listed above and ensure that they are given appropriate literature.
- Set up a system of record-keeping, reporting, and posting of injuries and illness.
- Find additional compliance assistance information from the local OSHA representative.
In order to provide the best quality construction, Addams Interiors has established and adheres to a set of constant guarantees geared towards minimizing common pain points in the industry. Listed below are the pain points, followed by Addams' means to alleviate them.
Lack of Performance
On-time Delivery: While our focus is not on completing jobs in record-time for our customers, we do guarantee that our work will be completed within schedule and in accordance with the standards of our customers. Addams will be able to ensure this through accurate bidding and detailed project management.
Finest Supplies: Addams realizes that the materials used in a job are just as important as the construction itself. High-quality, affordable materials and timely delivery from a reliable supplier are two major factors in our industry. Addams will be working closely with Moone Materials, Inc. in order to equip each job with the proper supplies.
Job-site Deliverance: On the actual job site, Addams guarantees a clean and safe work environment, in accordance with OSHA standards. Company-wide drug testing ensures substance-free job-sites. Noise awareness is a top priority for Addams, especially during the business hours of our customers.
Vision Partners: Whether Addams is searching for, establishing, or maintaining relationships within the industry, we will seek out only those who share the same commitment to quality and the customer.
Lack of Specialized Skills
Addams promises experienced craftsmanship and attention to detail on every job. As mentioned in this plan, the Union will provide the specialized education required of all our field workers.
Lack of Flexibility for Customer Inquiries
Point-person: There will be a project manager who knows the job intimately and sees each contract not as an agreement between a business and its consumer, but between partners striving towards a mutually-beneficial and long-term relationship. It is the job of this project manager to ensure the satisfaction of the customer. He or she will be accessible to the client at any time of the day, and will respond to missed calls in a maximum time of two hours.
Communication Modes: Personally attended office telephone lines with voice mail, Nextel mobile phones with two-way radio, text, and numeric messaging, as well as electronic mail accounts provide clients with various communication modes.
Undercapitalization: Addams has calculated the initial capital needs and is in the unique position to receive a total of $70,000 towards funding the company through the savings of the founders and contributions of friends and family. Should the need for capitalization grow, Addams has the option of negotiating an increase in the amount of outside contributions.
Cash Flow and Billing Problems
The prior experiences of Addams' founders and advisors in the construction and accounting fields give the company an advantage in cash flow supervision. Mandatory daily meetings of top management will also help Addams to monitor cash flow and billing periods. Detailed job cost reporting enables both Addams and the customer to track and review even the most specific elements of each project.
High Pricing: Addams will maintain relationships with a vast range of independent subcontractors and suppliers in order to offer competitive pricing.
To measure our performance and see where our efforts can improve, Addams will stay current with developments in the construction field, apply for quality and innovation awards, and continually solicit feedback from our customers.
The Construction Innovation Forum (CIF), founded in 1986, recognizes advances in construction technologies, processes, and projects by offering the NOVA Award, which is considered the ''Nobel Prize for construction innovation'' (http://www.cif.org). Addams will benefit from our commitment to quality through increased customer confidence and loyalty, improved reputation and word-of-mouth referrals, expanded networks, and company growth.
For the future, Addams Interiors is planning to join the ''green'' movement. Generally, ''going green'' means more efficient use of water, energy, and other resources, but in the construction industry every facet of the building process is impacted. This includes site selection, landscape preservation, use of recycled materials, efficient design (i.e. using natural light where available), reducing material waste, and installing low-flow water fixtures.
To be officially recognized as a green builder, a company must register with the U.S. Green Building Council (USGBC) and follow the Leadership in Energy and Environmental Design (LEED) standard for building excellence. LEED certification provides independent, third-party verification that a building project meets the highest environmental building and performance measures. All certified projects receive a LEED plaque, which is the nationally-recognized symbol demonstrating that a building is environmentally responsible, profitable and a healthy place to live and work.
Due to the expense of constructing and renovating LEED-certified buildings, we intend to gradually implement these practices. We expect that during our fourth year of operation we will be able to focus on completing projects that will fully meet LEED standards.
The services provided by Addams Interiors may be common to other businesses in the industry, but the manner in which our services are performed is what that sets us apart. Addams seeks to be a major competitor in the interior general contracting segment, breaking the poor reputations and generally low achievement rates of minority-owned contractors. Minority business enterprises in the construction industry are frequently known for acting as ''pass-throughs'' for subcontracted work, simply putting their names on the jobs, taking a percentage of the revenues, and subcontracting the work out again. This practice is not in the spirit of the MBE goals and, unfortunately, has greatly hindered the respect of minority business owners who genuinely want to run legitimate businesses. We want our work to be our own in practice, not just on paper. If Addams is awarded a job that requires work which we are incapable of completing due to our specialized workforce or to time constraints, and it is in our client's best interest to subcontract the work, we will do so. We will not, however, act as a pass-through. Subcontractors will be chosen carefully to ensure our client's satisfaction and expectations are met and to maintain our quality standards.
Our tireless commitment to quality is demonstrated in the details of how we conduct our work. To us, quality is more than just a slogan. We understand that the customer defines quality. Due to the vast range of quality expectations from our customers, we realize that promising a 100 percent satisfaction guarantee is not feasible. Therefore, our promise is to work side-by-side with our customers and architects to identify the best way to serve each customer.
Our direct competition presents itself in two different forms. The first form is the competition Addams will have with other minority-owned interior contractors for carpentry subcontracting jobs in order to fulfill percentage goals. The only major competitor in this sector is Tubbs Subcontracting.
The second form of direct competition comes from other interior general contractors within the St. Louis Metropolitan area which are not minority-owned. The most dominant competitors in this sector are Rosen Contracting and Tubbs Construction.
The construction industry, as a whole, bases itself on fierce competition, which poses a potential longterm threat to Addams. In fact, companies must constantly compete against each other in order to win the bids for a majority of their projects. Providing the best services or low cost bidding are generally the two deciding factors for a customer. At Addams, we pride ourselves on offering the highest ranked quality and service, and therefore, will not always be able to offer the lowest costs. For this reason, the most likely source of direct competition for the company would be service-driven interior general contractors against whom we would bid for similar-sized jobs.
Jett Building has been in business for merely six years but has already landed several large jobs. As a union and minority-owned business, Jett Building offers services ranging from industrial and institutional design, advanced technology construction, new building construction, commercial and commercial-residential work, interior finish construction, and retail construction. Jett has built a portfolio of jobs with customers including First Bank, Wilson Tile and Roofing, Pharmaco Drug Store, and Trotter's Dance Club. Currently, Jett is working as a subcontractor for Pliff in the renovations of the district's elementary schools.
Rosen Contracting is also a young union, minority-owned business. Since its inception seven years ago, Rosen has offered services including demolition, rough carpentry, drywall, ceilings, insulation, concrete work, and foundations. Rosen works with customers such as Sandwich Shoppe, First Bank, and Speedy Taxi Company. In 2004, the company's fourth year of business, they were able to pull in revenues of $8 million. However, in year one, Rosen was only able to land a total of twelve projects. Due to our already growing networks, Addams anticipates landing forty-two projects of varying sizes the first year.
Tubbs Construction has experienced seventy years as an established minority-owned, union contractor. Current projects for Tubbs include several local restaurants and the local library branch. Tubbs prides itself in its ability to offer a vast array of capabilities. These services range from construction management to general contracting, design-build, build-to-suit, self-perform, and interior construction.
MBE Competitive Advantages
The medium-to large-sized general contractors in St. Louis are constantly searching for quality, minority-owned businesses to which they can subcontract work from large projects. This, however, has traditionally been a difficult task. Many minority-owned companies have been known for performing substandard work or subbing out jobs once they have been awarded. Addams looks to ease this pain for our customers by establishing itself as a quality-driven and trustworthy subcontractor. We will aid the customer in fulfilling its minority requirements and we will do so by reverting back to the traditional values of the construction industry: performing our own work and focusing on the customer.
If we are bidding against another minority-owned interior contractor for a subcontracting job, we will be able to differentiate ourselves by guaranteeing high-quality work that is our own. The only circumstance in which we will, in turn, subcontract out a portion of the work awarded to us is when the task is outside of our job scope (electrical, painting, etc), or current work is so busy that timeliness of job completion could be affected. It is also our guarantee that if we must subcontract out any work, Addams will only award the job to companies it feels can maintain the quality for the customer.
Peters Brothers is a non-MBE that has been in business for over 25 years. With over 200 craftsmen on the payroll, Peters Brothers has completed many large projects throughout the Midwest. The company is divided into three divisions: Drywall Construction, Floor Covering/Ceramic Tile, and Tenant Finish. They employ only Union workers and subcontract to other Union companies who are managed and coordinated by Peters Brothers.
Potter Construction Services is one of the oldest family-owned businesses in St. Louis. They specialize in architectural salvage and historic site refurbishment, which makes them a major player in the St. Louis construction industry. Potter is also non-minority owned and utilizes Union contractors. Several projects Potter has completed include renovations at a hospice center, as well as original construction of a daycare center in St. Louis.
Non-MBE Competitive Advantages
If we are bidding against a well-established, interior general contractor who is not minority-owned, we can leverage the fact that since we are minority-owned already, we will not have to subcontract work to another company. This will ensure better quality work, control, and speed on our part. We also will pride ourselves on the quality of our work as a contractor, rather than just as an MBE subcontractor. Another advantage to be executed in the coming years will be our completion of ''green'' projects. This undertaking is relatively new among many contractors, and is especially rare for minority-owned businesses. The efficiency of green building is rising in demand, which is why we plan full implementation by our fourth year of business.
Although competition for Addams presents itself in two different forms, we feel we are entering the industry in a unique situation. By concentrating our work solely in the interior commercial sector and always striving for work of the highest-quality, Addams is able to focus all of our efforts on being the best at interior renovations. This is a contrast to our competitors, who offer a variety of services such as concrete work and new building construction in the commercial or non-commercial segment. This specialization will allow us to compete for jobs that do not require minority percentage work. In such a case, we will beat our competition through our commitment to quality, efficient work and accurate bid pricing. By specializing in one segment, the company is able to focus all of its attention on interior renovations, thereby improving quality and customer experience.
While Addams Interiors will be bidding against our competitors for our own jobs, as a carpentry subcontractor, these same competitors could also be our customers. Especially with the established companies being awarded large bids, Addams can offer its services if the job requires minority work or if special circumstances permit for a subcontractor. These circumstances include large jobs where the customer would be unable to finish it alone or times where the customer is especially busy with other projects and the timeliness of the job's completion would be affected.
This mutually beneficial relationship offers a distinct interaction and teamwork between traditional competitors. By working alongside these companies, Addams would be able to gain substantial industry knowledge. More importantly, these relationships would offer Addams a deeper source of networking which would communicate our top quality efforts to potential customers.
Presently, the best source of competitive partnerships is found in companies such as Peters Brothers. Peters Brothers began twenty-five years ago as a union commercial general contractor. Peters Brothers provides work similar to that of Addams, including demolition, architectural woodwork installation, doors and frames, gypsum wallboard, and acoustical ceilings. A business relationship has already been established with Peters Brothers. Peters Brothers boasts a job portfolio of well-known clients in our segment.
Minority Business Enterprise
Because our Chief Executive Officer is a minority, Addams Interiors has decided to pursue official certification as a minority business enterprise (MBE) in the state of Missouri. As we grow, we will also obtain certification to operate as an MBE in the state of Illinois.
Once Addams Interiors is an operational business and registered with the Secretary of State, we can begin the process to become a certified MBE. This involves filling out a 16-page application and submitting resumes, a business plan, and a balance sheet to the Office of Supplier and Workforce Diversity. The process takes about 90 days to complete after the paperwork is properly submitted. Free workshops are held quarterly to familiarize new business owners with the program requirements and to help them compile their applications.
In the construction industry, it is often hard for an upstart, minority-owned company to compete against the larger, more established firms. The state of Missouri, however, is taking many steps to alleviate some of these obstacles.
In 2004, Missouri Governor Matt Blunt, and the Office of Supplier and Workforce Diversity (OSWD), began to encourage the inclusion of these smaller companies by setting a goal that at least 10 percent of all government contracts valued at $100,000 or more be awarded to minority-owned businesses. The reason for instating such a goal was to increase workforce diversity and increase MBE participation in state contracts. This target goal is enforced primarily when awarding government contracts but all general contractors are highly encouraged to subcontract a minimum of 10 percent of large projects to minority-owned companies as well.
Many established St. Louis-based contractors, such as Rosen Contracting, who believe strongly in the purpose of these diversity efforts, subcontract as much as 25 or 30 percent of their own projects to disadvantaged firms. Private institutions, such as Saint Louis University (SLU) and Washington University, which are not required to utilize MBEs, do so in order to show diversity and good will. The recently constructed Edward A. Doisy Research Center at Saint Louis University, a $67 million project, had a 25 percent goal for MBE participation and the $80.5 million Chaifetz Arena project recently completed at SLU was heralded for reaching its minority participation goals. Fr. Lawrence Biondi, President of SLU and a strong proponent of revitalization efforts in midtown St. Louis, was awarded a lifetime achievement award from MOKAN, a regional organization dedicated to minority inclusion on construction projects (St. Louis Business Journal). The support of individuals and institutions that are committed to creating diverse working environments will provide Addams with a steady market.
Addams can benefit in many ways by being classified as a Minority Business Enterprise. Being minority-owned makes us eligible to join associations that were created for the sole purpose of helping MBEs. In the initial stages of launching our business, these resources will offer excellent opportunities to expand our network. These organizations are discussed in detail in our marketing plan. While we will get our start from our MBE contracts, it is not our goal to be defined by this status, but rather by the quality of our work.
The sub-prime mortgage crisis that has devastated the residential construction industry has not had nearly the same negative impact on the nonresidential segment. While the residential construction industry has experienced a severe decrease in construction spending, dropping 16 percent in 2007, the nonresidential sector has seen an increase of 15 percent according to Bureau of Labor statistics for August 2007. Even with a declining economy, some industries are, for the most part, immune to macroeconomic activity. Accounting firms, law firms, educational institutions, and healthcare service providers are essential to the functionality of the general society and will continue to grow and will need renovation services for their facilities. Surges in the costs of material and labor inputs for construction services were a concern from 2004 to 2006, but the increases slowed in 2007. Recently the Associated General Contractors of America issued a warning that the input costs may again increase in 2008. This must be monitored and considered in bidding jobs to remain profitable.
Lower interest rates benefit the industry, as they will make construction more feasible and allow better building allowances on new office space. As a start-up business, Addams would be able to finance growth easier with lower interest rates.
We have set a plan to tackle a slowing economy. This plan includes:
- Diversifying within the commercial industry: Seeking jobs in a broader range of segments, including retail, hospitality, tenant finish, institutional, financial, and corporate.
- Cutting overhead costs: Being efficient with overhead spending.
- Improving jobs with existing customers: Guaranteeing customer satisfaction and the best quality we can give.
- Closely monitoring jobs and cash flow: Keeping satisfaction in terms of time and quality with current jobs.
- Improving margins on projects: Being financially efficient without sacrificing our core competency.
- Eliminating costly mistakes: Being aware of mistakes and how to avoid them.
- Billing and collecting aggressively: Keeping our Accounts Receivable in check.
- Targeting more stable industry segments: Focusing attention on companies that belong to industries that are less directly affected by macroeconomic activity.
We are also being especially mindful of our overhead expenses at start-up and keeping them at a minimum by working from a home office and setting low salaries for the founders until the company gains momentum.
Within the commercial interior industry, there are two facets of Addams Interiors. We seek to enter the market as both a commercial interior general contractor and as a commercial minority-owned sub-contractor.
Addams will target two segments:
- New and growing organizations that use commercial buildings (including office, retail, hospitality, restaurant, financial, and institutional).
- Large- or medium-sized construction companies looking to subcontract work to minority-owned companies to fulfill MBE percentage goals.
We anticipate entering the market with a fairly high acceptance rate from our clients because there is a need for quality, minority-owned interior contractors.
- One of the primary strengths of Addams is our classification as a minority-owned business. This places us in a coveted position with high demand by clients and other contractors who want to fulfill minority percentage goals. Additionally, this classification opens many opportunities for participation in mentoring and incubator programs in the St. Louis area.
- The management team of Addams has broad experiences that will give us a solid foundation from which to launch our business. Our team includes a union Journeyman, an accountant, and others with knowledge of the construction industry through prior employment and self-employment. The team has undergone training in construction project management to further add to their skill sets. While young, the managers are enthusiastic and aggressive, and are eager to put their talents to work.
- The owners of Rosen Contracting, veterans with over 45 years combined experience in the commercial interior construction industry, have offered their support and guidance as we proceed with this venture. Rosen has also agreed to provide us with our first job, guaranteeing us work from day one, and Rosen will continue to feed us subcontracted work. Having a vast network of current St. Louis-based contractors will further strengthen our marketing power and ability to generate leads and contracts in the beginning stages, propelling us through a quick start-up phase.
- We currently have no workforce, but we will be able to hire from the union labor pool upon starting the company. We may experience a high turnover rate initially while we find a core group of quality employees.
- While being minority-owned is considered a strength in one sense, we are also entering a segment of the industry that has a reputation for producing low-quality work. This will be a challenge that our professional network will be able to help us overcome.
- Additionally, there are risks associated with starting a company with closely-related owners. Being part of a family-owned business already, the owners are aware of the inherent difficulties of working with this structure. Keeping business roles clearly defined will allow the owners to over-come these challenges. In Addams, Tabitha Addams will be serving as the CFO. As a CPA, she will perform all the tasks associated with the accounting side of the business. Bruno Palio, the CEO, will primarily be working as a project manager, bidding on jobs, managing the job sites, and interacting with our customers.
- Due to the percentage of contracts that must be fulfilled by disadvantage businesses, there is a high demand for minority-owned contractors. There is a severe shortage of interior contractors, as demonstrated in our competitive analysis, and this niche gives us the benefit of being a sought-after subcontractor.
- It is possible that the economic downturns which have disrupted the residential construction industry may also cause less spending on renovations in the commercial segment. Those in the industry, however, are optimistic about the future. They have affirmed that the commercial segment has not suffered as much as the residential segment and they expect it to recover within only a couple of years. Thomas McMaster, CEO of a successful development company based in St. Louis firmly believes that the economy should be out of its decline in two to three years.
- Competitive pressures from established general contractors may make winning large contracts on our own difficult at the beginning stages.
- Changes in government regulations, especially the overturning of percentage goals, could also lessen the appeal of one of our key selling points of being a MBE subcontractor, but would not impact our ability to bid for jobs as a prime contractor.
Ward Connerly, the founder and chairman of the American Civil Rights Institute, an organization opposed to racial and gender preferences, is currently promoting a ban of the affirmative action measures in Missouri. Connerly claims these initiatives to reach out to disadvantaged businesses are tantamount to racial discrimination, taking business from more qualified non-minorities and awarding the projects, instead, to undeserving DBEs. A similar ban was passed in California in 1996 under Connerly's leadership. This ban resulted in the women- and minority-owned share of State Depart- ment of Transportation contracts to drop from 27.7 percent to 8.2 percent. Industry leaders in St. Louis are optimistic, however, that this ban will not pass in Missouri and the directors of PRIDE of St. Louis, a local organization devoted to increasing efficiency by creating harmony between construction laborers and managers, speak against it, promoting instead the benefits of having a diverse workforce.
The implementation of mentor-programs, which pair an established company with an emerging one, is a positive step being taken in St. Louis to promote disadvantaged companies and to spur the construction industry and the economy at large. Rather than simply tracking minority participation statistics, the companies behind many large projects are taking a more proactive approach to increasing diversity on their jobsites. The Lambert Airport expansion was the pilot project for this initiative. Of the more than 550 companies and organizations involved in the $1.059 billion expansion project, about 100 were disadvantaged business enterprises. A project of this magnitude can severely hurt small companies, but through the mentor-program, the young companies were provided with many valuable benefits including free workshops, networking events, as well as the sharing of insight and wisdom from the established firms with which they were working.
The Busch Stadium project also integrated DBEs with a mentor-program. Eighty minority and women- owned firms were granted 130 contracts totaling $65 million of the $300 million project. The prime contractors were each required to mentor at least one DBE, many of which were small start-ups or companies inexperienced in working on large projects. The 23 participating protege firms received $21 million in contracts.
PRIDE is further promoting disadvantaged business enterprises through its incubator program, designed to mentor minority contractors to build strong businesses.
Additionally, general contractors who subcontract to MBEs are benefited by receiving tax abatements. Missouri is one of the more generous states in terms of tax credits for a variety of reasons. One reason being the attempt to salvage a vast number of historical properties. Specifically, the Missouri State Historic Tax Credit provides an incentive for developers to salvage these commercial and residential historic buildings. A second reason stems from the accelerated pace of the revitalization efforts of downtown St. Louis. Typically these changes occur over several decades, but St. Louis is seeing an incredible rate of transformation for these projects. One of the major tax benefit programs Addams will be dealing with is the Tax Incremental Financing, or TIF, which is designed as a financing tool encouraging the redevelopment in blighted districts. Under this program, a developer can underwrite the improvements and be reimbursed later for costs such as assembly, acquisition, demolition, finan- cing, or renovation.
Developers can combine state building credits with federal historic tax credits. These credit programs allow developers to receive up to forty-five percent credit for renovation costs for commercial proper- ties. The city also offers additional tax abatement programs to encourage the use of minority-owned companies in construction projects. In most cases, minority participation is required to receive the tax incentive. Both credit programs are highly utilized in the industry and drive the demand for quality minority-owned subcontractors.
St. Louis City provides a central location for institutions of higher learning and a wide variety of up- and-coming businesses. Downtown is already home to numerous buildings, apartments, condos, offices, shops, restaurants, sporting venues, convention centers, and entertainment centers. According to the St. Louis Regional Commerce and Growth Association, the Greater St. Louis Metropolitan area ranks 18th with a workforce larger than 1,450,000. The RGCA also reports that the Site Selection magazine issued in March 2008, lists the St. Louis region as #3 in the nation for attracting new and expanding corporate facilities. Validating these ranks is the number of new developments that are being planned, and the many more that are expected to come.
This downtown comeback continues to create new opportunities in the interior renovations industry. A renewed spirit in downtown revitalization efforts, tax incentives and lower interest rates contribute to a stronger industry for Addams. The Downtown St. Louis Partnership leads the way in the pursuit of a rejuvenated downtown. As a not-for-profit organization, the Downtown St. Louis Partnership provides funding for the revitalization efforts. After adopting the Downtown Development Action Plan in 1999, the partnership was able to focus on four main areas of downtown: the Washington Avenue Loft District, Post Office District, Riverfront and the Gateway Mall. Since the plan's inception, over $4.6 billion has been invested or committed with over $900 million currently in development downtown as a whole (www.downtownstl.org). This investment represents over $513 million in hotel development, $685 million in office expansion and renova- tion, and over 80 new shops, restaurants, and services since 2003. Through the partnership's help, new projects are still being announced at an astounding rate. Upcoming revitalization projects of downtown St. Louis include:
- Ballpark Village: Next to the current Busch Stadium, this 12-acre project will require much interior construction. The development will include 250,000 square feet of restaurants, shops, and enter- tainment venues, 450,000 square feet of office space, 400 residential units, and 1,900 parking spaces. Examples of the occupants are a St. Louis Cardinals Hall of Fame Museum and an aquarium. Renovation of the St. Louis Center Shopping Mall, spanning over 540,000 square feet, is also being considered.
- Lyme Circle: This has also been undergoing renovations over the past couple of years, and will continue to see improvements.
- The Whittier Place: Features the renovation of a five-story, 30,000 square foot building into a multi-purpose complex. It will feature loft apartments, office suites, 5,500 square feet of first-floor retail, and an underground parking lot.
- Potter Place: A seven-story, 66,800 square feet, multi-use building, with commercial projects as well as residential.
- Circle Center Apartments: This will feature 95 residential apartments and 10,000 square feet of street-level retail.
Our marketing strategy is to position Addams as the leading interior renovation contractor in the market through strong professional relationships.
Relationships with major area contractors and developers substantiate Addams' readiness for consider- able growth and accomplishment in nonresidential interior construction services for the St. Louis area.
Jett Building, LLC, a minority-owned and union commercial general contractor, would also be an ideal competitive partner for Addams. Offering a variety of services including construction consulting, estimating, scheduling, budget and value analysis, and project management, Jett has proven to be a top competitor in the commercial segment. As a minority-owned business itself, Jett would be an exemplary business to model as well as a potential mentor for Addams. Diversifying our relationships within the industry remains a top priority for Addams. Whether this means seeking contacts in the field of carpentry, architecture, management, real estate, or any other sector, Addams believes an expanded portfolio of contacts will more effectively communicate our abilities to the construction industry. By fully committing to our customers today, we believe they will not only provide repeat business, but they will also recommend us in the future. Addams has already made the first step in initiating contact with a number of influential individuals established in St. Louis. A brief look at our network portfolio includes:
- Alicia Tweat, Executive Vice President of Tweat Properties,
- Phillip Fraeniser, Anchor Consulting,
- Michael Hubbard, a construction insurance consultant,
- Jackson Unkel, an attorney,
- Wyatt Stone, owner of the minority-certified Carpets and More in California,
- The previously mentioned Thomas McMaster.
Professional membership in organizations such as the Associated General Contractors and the St. Louis Minority Business Council will help us network. Each organization has regular meetings and network- ing opportunities to meet with prospective customers and competitive partners.
The key value behind networking for Addams will be the steps taken after initial contact is made. After obtaining these contacts through networking events and favorable introductions, we will look to establish and maintain long-term relationships with those who share our same values and commitment. Our reputation and the contacts we make are integral to the success of Addams. In the task of relationship building, we will be proactive in informing our potential partners about our capabilities, professionalism, and core values. In terms of relationships with our customers, our policy is to make follow-up contact with each customer and to request feedback from current and past clients to evaluate our performance and their overall satisfaction. Our goal at Addams is to create mutually beneficial relationships from the first day of contact.
Our management team consists of seasoned managers and experts whose backgrounds and experiences make them ideally suited to their respective roles.
- Bruno Palio: Co—founder & CEO—Bruno has been training in the Carpenters' Joint Apprentice- ship Program for the last three years where he has acquired the skills, knowledge and experience necessary to succeed in the construction industry. Before beginning his career in construction, Bruno worked five years as a certified air conditioning technician and building maintenance supervisor. Currently he is also enrolled in the construction supervisory program which will provide him with further project management education.
- Tabitha Addams: Co—founder & CFO—For the last three years, Tabitha has been attending Saint Louis University, working towards her degree in Accounting and Entrepreneurship, with a Spanish minor. Tabitha has an extensive interior construction background and has acquired invaluable experience within the commercial segment working with Jett for the last five years. Currently, Tabitha is taking a construction supervisory class with the Carpenter's Joint Apprenticeship Program in order to further her knowledge in project management.
- Matt Jones is double-majoring in Entrepreneurship and Spanish. Always drawn to entrepreneurship, he has been self-employed in various capacities for the past seven years, including running a house-painting business through College Works Painting that generated over $36,000 in sales in less than eight months. His interest in construction was fostered by this experience as well as many years of assisting his father with woodworking and home remodeling projects.
- Patrick Essen is also majoring in Entrepreneurship. He has 6 years experience between two different construction companies, and has become familiar with the technicalities of the industry. This back- ground, paired with his management coursework, should make him an ample manager for Addams.
- Jane Dow is a senior at Saint Louis University with concentrations in International Business and Entrepreneurship. She has worked at Credit Unions of America, which has given her experience in the corporate world. The skills she acquired from the nearly four years she has studied at Saint Louis University combined with her work experience will prove to be a valuable asset for Addams.
Addams' Board of Advisors is comprised of respected members of the St. Louis construction commu- nity. Such a team provides Addams with further industry experience and expertise.
- Peter Dewitt: President & Co-founder, Peters Brothers-With nearly thirty years of experience in the construction industry, Peter started his construction career as a carpenter so he has both knowledge of the field and office. As an active member of the industry, Peter serves on the board of the Associated General Contractors of St. Louis.
- Larry Twoell: CPA & Controller, Peters Brothers—Larry has acted as Controller for Peters Brothers for the last ten years. He semi-retired in July 2007 and now works on special projects and training within the company. Larry has utilized his proficiency in accounting to provide Peters Brothers with complete, reliable financials throughout his ten years with the company. With a degree in accounting and a Masters in finance, Larry was able to acquire many high profile positions. He was the Mid West Operations Manager for Putten Industries from 1987 through 1997 before coming to Peters Brothers. Larry also held the position of Accounting Manager for Rosen. He is currently pursuing an Associate's Degree in Architecture.
- Our fiscal year begins in January and ends in December.
- Our Income Statement is shown on a monthly basis.
- Our Balance Sheets and Cash Flow Statements are presented on a cumulative basis.
- For the first three years, we will be working out of the home of Bruno Palio and Tabitha Addams.
For all of our assumptions, we assume 4.33 weeks per month.
- Contract revenue is our main source of income.
- Revenue earned is equal to the amount billed each month.
- Contracts received are founded on projections based on our competitor's job mix and scaled to our company size.
- In year one, we receive a total of 42 jobs which, combined, total $1,105,300 in contract revenue.
- In year two, we receive 47 jobs totaling $1,572,500 in revenue.
- In year three, we receive 54 jobs worth $2,124,544 in revenue.
- We will be working up to three, five, and six jobs simultaneously in years one, two and three, respectively.
- Jobs classified as ''other'' do not apply to the first three years of projections.
- Our billings are set up so that we will receive contract payments 30 days after the billing date.
- Our first billing will be for 50 percent of the contract amount; our second for 40 percent; and our third for 10 percent of the contract amount.
- For the 10 percent retention payment, we use the late payment date to yield a conservative receipt date.
- For each job, we assume a 20 percent markup.
- Employees are paid for a 40-hour work week period.
- Costs account for 87 percent of revenues earned.
- Labor cost for field employees is computed as 60 percent of the current contract billings.
- Materials cost is computed as 40 percent of the current contract billings.
- Our owners are paid an annual salary of $30,000 for the first three years.
- In year two, we acquire a third office employee at a rate of $12 per hour, amounting to $24,940.80 each year.
- We intend to offer health care to our office employees in year four.
- After year three, there will be a 3 percent raise to each office employee every year.
- We will have one company car in year one with an additional car in year two with a quoted monthly lease rate of $450.
- Our printer/copier/fax machine will be leased for $350 per month.
- Accounts payable per month is equal to the current direct materials plus equipment purchases.
Our start-up funding of $70,000 consists of a $50,000 interest-only note from Peter Dewitt and a $20,000 contribution from Bruno Palio and Tabitha Addams. Interest expense on the 25-year $50,000 note is amortized at a rate of 7.5 percent per month. At start-up, we will authorize 100 shares of $1 par value common stock, with 500 shares issued and outstanding, which will contribute a total of $500 in the company. Over the course of three years, we will require three lines of credit from the US Bank Cash Flow Manager reaching a total of $113,687.50, including interest payments at a rate of 6.25 percent. We will pay the line of credit off in the next month when our cash flow is sufficient to cover it.