On the Fence

Major California fence provider Cal-State Site Services adds portable sanitation as a diversification play
On the Fence
Cal-State owner Rick Modlin (left) and manager Eric Giffin pose with their complementary offerings, fencing and portable restrooms.

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Portable restroom operators interested in generating a new revenue stream – as well as establishing a logical launching pad for developing more complementary on-site services – could benefit from the experience of Rick Modlin, owner of Cal-State Site Services Inc. in Simi Valley, Calif.

As the recession worsened and eroded profit margins at his temporary-fencing business, Modlin became more and more intrigued with diversification. Eventually, he acted on something he’d observed for years: When contractors need temporary fencing, odds are they also need portable restrooms – and would prefer to rent them both from the same supplier.

That’s why his company, recently renamed Cal-State Site Services Inc., bought Nature Calls Port A Potties (now known as Nature Calls Sanitation Inc.) in nearby Oxnard in September 2010. In addition, the company is in the process of acquiring another restroom company to further diversify its business base. That should go a long way toward making Cal-State less reliant on one revenue stream and less vulnerable to cyclical economic downturns.

“We’ve always thought about getting into portable restrooms, but we really got serious after the economy went south,” Modlin says. “We’ve seen prices driven down in our industry, and customers want one-stop shopping – one invoice instead of two or three for various services.

“Our profit margins are so slim now … the only way to compete is to add another product and develop another revenue stream,” he continues. “And the most logical thing for us is portable sanitation.”

 

BALANCE THE BUSINESS

Even Modlin’s diversification efforts are diversified. Nature Calls is primarily an agricultural-focused sanitation company that owned 450 restrooms (made primarily by Five Peaks Technology and Satellite Industries Inc.), several custom-made trailer units and three older vacuum trucks (an International with a steel 1,100-gallon waste/400-gallon freshwater tank and two Fords, one with a steel 600-gallon waste/200-gallon freshwater tank and the other with a steel 800-gallon waste and 200-gallon freshwater tank). And the restroom business Cal-State is in the process of buying mainly caters to special events.

“This gives us a pretty strong trifecta – a well-balanced company,” he says. “No matter what happens with the economy, people have to eat. So that (agricultural) industry doesn’t see economic slumps the way the construction industry does.”

To support its new endeavors, Cal-State bought a 2011 Freightliner M2, built by T & B Sales Inc., with a stainless steel 1,100-gallon waste/500-gallon freshwater tank. The company also bought 300 more restroom units from Five Peaks. The company also has 25 ADA-compliant We’ll Care restrooms and 25 Bravo handwash units from PolyJohn Enterprises Corp.

“Our short-term goal is to get 1,000 units out there within a year,” Modlin says. “We hope we can pull some accounts in by leveraging existing business relationships.”

 

FENCE MAKES SENSE

Just as diversifying into portable restrooms made sense for Cal-State, branching out into temporary fencing could make sense for some portable restroom operators, who should find themselves on familiar ground, in terms of supplying site services. To make this diversification play, it’s instructive to learn how Modlin’s emphasis on customer service and new technology helped the company (formerly known as Cal-State Rent A Fence Inc.) grow into one of Southern California’s larger temporary-fencing contractors.

Modlin started out with a general engineering and contracting business called Classic Construction Ser-vices, which specialized in water and sewer projects. He got into fencing in the late 1980s when he realized the company was spending $20,000 a year on temporary fencing to protect historic oak trees standing on jobsites throughout Ventura County. His conclusion: “That’s crazy – we should be doing this ourselves.”

Modlin invested in some metal fencing, on which he hung signs to advertise Classic’s services. But a funny thing happened: Calls started rolling in, asking if the company did fencing, too.

“We started saying, ‘OK, sure, we can do that,’ ” Modlin recalls. “A light bulb kind of went off … that this seemed to be a little business entity that might work on its own.”

In 1991, Modlin founded Cal-State as a separate company and sold Classic a year later. Phone book advertising generated enough initial business for the company to start competing with larger site services companies, Modlin says.

Things mushroomed from there, with the company never recording less than 40 percent annual sales growth – until the most recent recession hit. But even then, Cal-State didn’t experience a real slowdown until 2010, buoyed by business from banks that needed fences erected to protect foreclosed homes from vandals.

 

UNEXPECTED BOOST

No businessman wants to benefit from tragedy. But the fact of the matter is that Cal-State’s fortunes soared in the wake of the Northridge earthquake in January 1994, which measured 6.7 on the Richter scale and did an estimated $20 billion in damage. Driven mostly by an almost overwhelming need to fence off damaged homes and other structures, Cal-State’s fencing inventory increased to 500,000 feet from 50,000 feet in just one year. The pace was frantic, Modlin says.

“We basically were hiring anyone who owned a pickup truck and could pile in a couple rolls of fencing and a posthole digger, from friends to friends of friends – anyone who was willing to work for us,” he says. “Within a year, we went from two trucks to eight and from two phone lines to six.

“We’d sent out guys with blank rental-agreement contracts because when they’d go out to a job, neighbors would come out and ask for service, too,” he adds. “We couldn’t keep up with the work.” Modlin acknowledges that Cal-State probably wouldn’t be as big as it is today, with an inventory of more than one million feet of chain-link fence, without the earthquake.

“A lot of what we do involves natural disasters, such as wildfires, mudslides and earthquakes that sometimes require us to fence off entire blocks for insurance liability reasons,” Modlin says. “I hate to say it, but every cloud has a silver lining.”

The company keeps a certain amount of fence in reserve for such disasters, he says.

 

FLAT-RATE PRICING

As a general rule, Cal-State charges a flat rate for fencing for a specific rental period. That rate usually covers up to 200 feet of fencing; after that, volume discounts apply. If a customer needs fencing for longer than expected, the company charges 15 percent of the original installation costs every month beyond the time specified in the contract.

“The initial cost of fence now is so high – for fence, posts, gates, etc. – compared to what you can rent it out for, that you need to have it out there a couple years to get a return on your investment,” he says. “Our prices should be two or three times higher than what they are currently … that’s how competitive it is out here among big site-services companies.”

Rising steel prices have further squeezed profit margins, he says, pointing out that in 1990, he was paying 20 cents per lineal foot, compared to about $1.80 now. Moreover, cost-conscious, recession-battered customers are more prone to price shopping now than ever before.

“There are still a small percentage of people who care about service, but most won’t pay 20 cents more per foot for that,” he says.

Modlin says the key to achieving a quicker return on investment is obtaining many short-term rentals, such as for special events, which because of the pricing structure generate more revenue than the company’s long-term rentals.

“Diversifying into temporary fencing may not work for some restroom operators because raw steel is so expensive right now,” Modlin says. “In the portable restroom industry, it’s not unusual to pay off the cost of restrooms and start earning a profit on them within four or five months.

“With temporary fencing, and steel prices as high as they are, it might take two years to make a profit … unless you have jobs with quick turnaround of inventory,” he says. “If you don’t have a lot of competitors, you might be able to make it work, especially if your focus is special events.”

 

QUAKE FORCED CHANGES

While the earthquake made Cal-State a major player in the region, it also dramatically shifted the company’s business dynamics. Exponential inventory growth created extra pressure to get fencing out in the field and generating revenue, and that pressure only increased as construction business fell off during the recession.

“It’s all about volume now,” Modlin says. “The reality is that as things have gotten tight, prices have fallen … so it’s about a lot of exposure, a large percentage of market share. We can’t survive on 100 jobsites – we need 2,000 jobsites.

“We’re down to 1,600 jobsites now,” he continues. “At our peak, about 2,200 would be normal. Volume is critical to weathering the slower times. We still have positive cash flow and no layoffs … we can control overtime to manage our labor costs and keep the company profitable.”

During the last 10 years, Cal-State underwent another shift, this time in the type of fencing it uses. Responding to market demand, the company invested more in free-standing, 10-foot-long fence panels, which now generate 50 percent of its business, Modlin says. The company buys all its fencing from Swan Fence Inc.

Crews can erect free-standing fence faster than post-mounted fencing, but that advantage is offset by the fact that trucks can carry only about 1,500 feet of free-standing panels compared to 5,000 feet of rolled fencing. As such, it requires three trucks and three crews to erect an equivalent amount of free-standing fencing, Modlin says.

“We charge more for panels because they cost more and require more labor on site,” he explains.

The application or customer preference drives what type of fence is used. Post-driven fence is more secure; free-standing panels are more popular for special events where security isn’t as much of an issue.

 

COMPETITIVE PRICING

Like the situation faced by so many traditional portable sanitation companies, Cal-State’s biggest challenge remains low-ball pricing from competitors, making customer service even more critical than usual, Modlin says.

“There’s so much money being left on the table, it’s just ridiculous,” he notes. “The only way to combat it is to provide the best possible service you can give. Everyone says they provide great service, but you really have to offer the best service possible. These days, there’s no margin for error.

“Our philosophy is on site, on time, every time,” he says, echoing a common strategy employed by many PROs these days. “If we say something is going to happen at a certain time, we make it happen. We all have about the same prices, so it’s the only way we can differentiate ourselves.”

Overall, Modlin remains optimistic about the future of his company, particularly as it expands further into portable sanitation.

“I think the restrooms will go just as well as the fencing did,” he says. “We’re establishing ourselves at a great time. When things pick up, we’ll be well established and ready to take it to the next level.”



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