- February 1, 2013
Creative destruction, famously coined by Austrian economist Joseph Schumpeter, is happening all over the Gulf Coast and perhaps nowhere so visibly as in the construction industry.
Nimble entrepreneurs are taking advantage of the collapse in commercial and residential construction to outfox well-established firms that grew fat during the boom.
But in the case of Synergy Contractors, a cement-subcontracting firm in Fort Myers, you might call this phenomenon creative construction.
Run by young brothers Verne Nieves, 29, and Nelson Nieves, 32, the three-year-old firm builds or renovates Publix supermarkets, Walgreens drugstores, Wal-Mart stores banks and medical-office buildings all over Florida. They build upscale homes, too.
Their strategy is simple: beat the competition on price and no job is too small. The key to pulling this off while still making a profit is to control overhead. The Nieves brothers operate out of modest offices, put money back into the company, buy used equipment and don't pay big-shot salaries. “We don't have six tiers of upper management,” say the brothers, who are always on the road supervising projects themselves.
Plus, they have a burning desire to succeed. “We're really, really hungry,” says Verne Nieves, who has been known to pursue customers relentlessly until they at least give him a hearing.
Despite their youth, the Nieves brothers are applying the lessons they learned at Florida Gulf Coast University's Lutgert College of Business and from their competitors' stumbles. “You learn from their mistakes,” says Nelson Nieves. “We're thankful we're young enough to go through this,” adds Verne Nieves. “I'll never forget this market.”
Long hours, low overhead
Keeping overhead costs low and working hard are common traits in the Nieves family. Their father was a merchant marine sailor from Uruguay who landed in Miami with 25 cents in his pocket. “If you're hungry, you can accomplish anything,” Nelson Nieves says.
The family moved to Cape Coral in 1994 and Verne and Nelson Nieves attended Florida Gulf Coast University. Nelson, the eldest, went into banking after graduation and worked for Colonial Bank and Fifth Third Bank in commercial lending, learning valuable lessons by reviewing loan applications.
Verne, Nelson's younger brother, preferred being an entrepreneur and worked as a residential real estate agent by day and a restaurant waiter by night. “I never wanted to be in the corporate world,” he says.
But the brothers teamed up in early 2006 to build a three-story, 6,000-square-foot house for their father in Cape Coral. They enjoyed that so much that they started building other homes, often undercutting rivals on price.
Within months of starting their company, the Nieves brothers landed a deal with Hovnanian Enterprises, the national homebuilder that had acquired the assets of First Home Builders in Fort Myers. It was the tail end of the residential boom and Hovnanian's First Home unit was Lee County's largest single-family homebuilder.
The brothers used the same low-bid tactic to get their foot in the Hovnanian door to do the cement work in the homes. “They started us off on one or two houses a week,” Verne Nieves recalls. Then, as Hovnanian became satisfied with their work, Synergy was building 18 to 20 homes a week. “In 2006, we built 3,000 homes for them,” Nelson Nieves says. That year, they posted revenues of $9 million. “You always aim high, but we never thought it would be that quick,” he quips.
Synergy had low overhead and that helped them get the Hovnanian business. It was a high-volume, low-margin business that rivals often passed on, but which the Nieves brothers embraced. “We learned how to make money on tight margins,” Verne Nieves says. They worked hard too, pulling 100-hour weeks by pouring concrete at night under floodlights.
They built the company by keeping a lid on wages and watching every penny they spent on equipment. Instead of buying new $45,000 trucks, for example, they paid $3,000 for used ones at auction. “Everything we bought we paid cash,” Nelson Nieves says.
While the profit margins were thin, Hovnanian paid on time and that allowed the Nieves brothers to grow the company using the steady cash flow. “That company was like clockwork,” Nelson Nieves says. It also helped Synergy get good credit from vendors like the cement giant Cemex, an asset that would help them land bigger commercial jobs later.
Shift to commercial
Nelson Nieves' experience in banking helped him detect the tightening credit markets as early as 2006 and he knew that would spell trouble for the housing market. “You follow the money,” he says.
By 2007, Synergy started to hire the first wave of people laid off by struggling commercial builders, including estimators and foremen. “The success to any business is hiring the right guys,” Nelson Nieves says. “There was a lot of talent.”
Their first commercial job was building an AmSouth Bank building in Naples in early 2007. By then, they had laid off many of their residential workers, most of whom knew the boom was ending anyhow and left the area in search for new work.
“It's the law of construction,” Nelson Nieves shrugs.
It used to be tough for a residential builder to take business away from commercial contractors, but Synergy's price was right and that fact was becoming crucial in landing jobs. Larger competitors had equipment to pay for, fancy offices and high salaries to maintain from the boom years.
“We had no fat from the beginning,” Nelson Nieves says. “We looked at every line item and we were very aggressive.”
General contractors pick subcontractors like Synergy and customers don't usually get involved in the selections. But customers like Publix Supermarkets wanted to know who was building their stores.
“Publix grilled us a little bit,” Nelson Nieves recalls. The chain reviewed Synergy's financials and called credit references, passing the firm on both tests.
“We did the Publix at Ave Maria,” Verne Nieves says, noting that it was won in competitive bidding for the store at the new town in Collier County being developed by Barron Collier Cos. and Domino's Pizza Founder Tom Monaghan.
The Nieves brothers' attention to costs and low overhead allows the firm to underbid rivals and still make a profit, they say. For example, it recently bid $180,000 below its closest rival for a $700,000, three-story medical building and still made money on the project.
“They're opening a lot of doors for themselves [with low bids], but repeat business they get from quality work,” says Ron Marra, senior estimator with Wright Construction Group in Fort Myers. “They're definitely energetic and ambitious.”
Nelson Nieves says one important way to get work is to help general contractors find ways to win jobs. “You've got to be a part of the solution,” he says.
He takes the cue from a biography of Winston Churchill he's reading. Churchill had to persuade President Franklin Roosevelt to come to Britain's aid against the Germans during World War II, not an easy task given America's isolationist tendencies in those days.
Because of the downturn on the Gulf Coast, the Nieves brothers are always on the road. They build in Jacksonville, Orlando and the Miami areas, setting up crews wherever they can find work. No job is too small. “We'll lay one block for you,” they say.
The Nieves brothers expect their statewide expansion to bring in $20 million in revenues this year, up substantially from the $5.5 million they reported last year. “There's enough work if you're competitive,” Nelson Nieves says. “We have a lot of stuff in the pipeline.”