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January 08 37 AmericanResidentialServices Keith Regan learns how an entrepreneurial philosophy and experience in managing a distributed workforce is the engine for both growth and profitability Samemodel, biggeropportunity

When Don Karnes joined TruGreen in 1979, the company had about $2 million in annual revenue. Two years later, David Slott joined the company, which by then had grown to $4 million in annual sales. By 2004, when the pair left to pursue private equity opportunities, TruGreen ChemLawn was a company with a $2 billion market capitalization and approximately 25,000 employees. They are back at it today for another run at the helm of American Residential Services (ARS), a national residential services company focusing on home plumbing and heating, ventilation and air-conditioning (HVAC) services. They took the wheel at ARS after the private equity sponsors they are teamed up with, Caxton-Iseman Capital and Royal Palm Capital Partners, united to purchase the business from The ServiceMaster Company (which also owns TruGreen). In terms of sheer size, the new opportunity dwarfs the yard care business the pair helped grow at TruGreen. “We were in a $3 billion marketplace then and this now is about a $40 billion a year opportunity in a very fragmented industry,” says Karnes, who is officially CEO, with Slott as president and chief operating officer. But they are not fussy about titles. They run the company together as a “true two-headed monster”. They had their eyes on ARS during much of their time at Royal Palm Capital Partners. “We were aware there were a lot of good people here and a lot of opportunities to address what we would consider to be differing priorities in what the field wanted and what the corporate direction was,” says Slott. “We would say that we’re in the people management business. In a decentralized model, it’s all about the branch operations. You need to keep decisions as close to the employees and customers as possible.” Karnes and Slott brought to ARS the same philosophy that had led to success with TruGreen. They give branch managers significant freedom to make local decisions, based on their knowledge of the market and their customers’ needs, and reward those managers who succeed at growing their business in a profitable way. “The most exciting part was knowing we could come in here, make some moves and get out of the way and let the people run their business,” Karnes says. “You also have to have a little fun along the way. It doesn’t have to be a circus every day, but you’ve got to enjoy what you are doing and celebrate the successes you do have.” While local freedom is important, ARS L.L.C., which operates as Rescue Rooter on the West Coast and ARS elsewhere, also recognizes the need for consistency across its operations. “We say be national but act local,” says Slott. “I’d say the balance is 75 percent uniform and 25 percent custom. We want the business to run at the branch level on the litmus test of is it legal, ethical and moral and by asking the two questions: ‘if I was a customer, how would I want to be treated and if I was an employee, what’s the right answer here?” Karnes and Slott believe the general managers are the lynchpins to success of the system and have strived to ensure they are well-trained and well-compensated to ensure turnover remains low. “We really disdain turnover and so we are making sure we’re doing what it takes in terms of being the premier employer in our industry. If people are going to work in the HVAC or plumbing industries, we want them to come to work for us.” The new leaders also eliminated a significant amount of bureaucracy that had built up during the time ServiceMaster owned ARS. “We wanted to get back to letting somebody be an entrepreneur, letting them take care of their customers and of their business,” says Slott. “We would say that we’re in the people management business. In a decentralized model, it’s all about the branch operations. You need to keep decisions as close to the employees and customers as possible”