Legal Eagle: Small Business Advice From an Attorney Turned Portable Restroom Operator

Houston business entrepreneurs and longtime pals combine skills to transform an underperforming portable restroom operation into an ironclad success.
Legal Eagle: Small Business Advice From an Attorney Turned Portable Restroom Operator
Texas Waste Co. owners Travis Vargo, left, and Doug McReaken. The company runs several vacuum rigs, including a Hino truck from FlowMark. (Photos by William Chambers)

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Acquiring portable restroom company Texas Waste Co. was only the beginning of a formula for success that saw its new owners modernize operations, upgrade service levels, rationalize routing and completely rewrite contracts that worked against the business.

Travis Vargo, an attorney, and Doug McReaken, an entrepreneur with a background in information technology and human resources, have been friends for almost 20 years since attending Texas Tech University together.

“We’ve wanted to own a business together for quite a while,” says Vargo.

McReaken is a member of Vistage, a business entrepreneurial group, where he heard the business was for sale. Texas Waste was founded in 1999 in Alvin, 30 miles south of Houston.

Vargo liked the future possibilities for container and fencing rentals to build new revenue streams. McReaken looked at the business assets and ran financials and projections.

“We were looking for a company where we could improve the quality of service, policies, sales and marketing, put a solid infrastructure into place, and exponentially grow it,” McReaken says. “We knew we could take on the area competition and create predictable recurring revenue.”

TAKING STOCK

The deal closed in August 2013, and the owners got straight to work at the 5-acre facility. Business assets included: roughly 300 restrooms — mostly PolyJohn and some Five Peaks; 10 250-gallon holding tanks from PolyJohn; and five stand-alone hand-wash stations from PolyJohn. The sale also included two vacuum trucks: an International 2300 (quickly liquidated) and a 2006 Ford F-550 with a 700-gallon waste/200-gallon freshwater steel tank and an engine-driven pump by Jurop/Chandler.

“A third of the restrooms were in good shape, a third passable, and a third in bad shape,” says Vargo. “We cannibalized 35 units to build 275 that were good to go.”

Vargo began to tighten up the company contracts, rewriting vague clauses to clarify responsibilities of both supplier and clients, and providing the company with greater leverage in settling disputes. McReaken began to revise accounting, scheduling and reporting policies and procedures. He temporarily moved dispatch to his own offices in nearby Pearland, leveraging the infrastructure of Media Riders, a staffing agency owned and operated by his family.

A supervisor was hired to oversee the company’s two employees – however, both left within six months.

“We needed to take it to the next level, and they had difficulty adapting,” says McReaken. “They were still faxing invoices and had no interest in using either software or new technology.”

BOOTS ON THE GROUND

Vargo and McReaken also worked to bridge the gap between ownership and boots-on-the-ground expertise, registering for the 2014 Water & Wastewater Equipment, Treatment & Transport (WWETT) Show.

“We split up the room, and learned all we could about the units, the trucks, the pumps, the capacities, the prices, and what similar-sized companies were doing on the other side of the country,” says Vargo. “We took an alpha male approach and walked up to anyone who looked successful and asked what made them successful, and about any mistakes they might have made along the way. The pumper community proved to be very helpful.”

Initially, the company covered a territory about 20 miles around the Alvin operations yard, including Houston.

“However, we started to get phone calls with warm and fuzzy promises of increased revenue that inched us out of our territory into west Houston and other locations,” says Vargo. “We became obsessed with growing so fast that we were chasing contracts farther afield without increasing prices to cover costs.”

Realizing the business required a management voice with more experience, the owners brought in Jason Kelley as a consultant in August 2014. Kelley is an ex-officer with the U.S. Marine Corps and possesses a long history of working with service-oriented businesses, including waste services and portable restroom operations. After 30 days, he was hired full time as company president and operations manager.

“I have a very lean approach to management,” says Kelley. “That’s essential for a company starting from a smaller fleet and customer base. The owners give me a lot of operational control as we continue to take the business from recovery into growth. I also take a very structured approach to human resources, making sure that everybody is pulling their weight and providing regular feedback.”

TRIMMING THE SERVICE AREA

Analyzing operations, the management team decided to trim the service area.

“You can drive revenue with unhealthy growth, but that isn’t profitable,” says Kelley. “We told clients on the service fringe that rates were going up. Many left, but a few stayed on. We’re now focused on route density to drive profit to the bottom line.”

Today, the company has built its service area around recurring anchor clients. It largely covers a client-dense triangular area covering Houston, south to Alvin and then 35 miles southeast to Galveston. About 80 percent of the client base involves longer-term accounts, including natural gas facilities, construction sites, pipeline construction operations, seaports and parks. About 20 percent includes events, such as fairs and weddings.

Texas Waste Co.’s biggest event has been the Texas Crawfish and Music Festival, held in spring, north of Houston. The challenging event hosts up to 37,000 people across two subsequent weekends beginning in late April. It uses as many as 120 units and 15 hand-wash stations, and requires two service runs per day.

The business now employs 18 workers, including a full-time mechanic. It fields 433 portable restrooms. The 258 from PolyJohn are used for construction sites. Special events are served using 171 units from Satellite Industries, and four pink units by PolyJohn. An additional 11 ADA-compliant units are from Satellite and PolyJohn. High-end rentals are served by six High Tech II units from Satellite and a pair of two-station Porta-Lisa trailers manufactured by JAG Mobile Solutions. The company offers 17 stand-alone hand-wash stations by Satellite.

Distributor Matera Paper supplies Kutol Soft & Silky soap and ARCOT deodorizer.

PUMPING UP

The Ford F-550 is still pumping, but the fleet has expanded to include four additional trucks, all with aluminum tanks: a pair of 2013 Hinos, one offering 1,500 gallons waste/500 gallons freshwater and a Moro USA pump from FlowMark Vacuum Trucks, the other with 1,000 gallons waste/500 gallons freshwater with a Jurop/Chandler pump from Satellite; a 2013 Ford F-550 with 442 gallons waste/178 gallons freshwater and a Conde pump (Westmoor Ltd.) from Satellite; and a 2001 Ford F-350 offering 300 gallons waste/125 gallons freshwater and a Masport pump from Imperial Industries.

A 1999 Dodge 2500 pickup is used for deliveries. It hauls portables using two trailers built in-house, each carrying as many as 10 units. An additional 12-unit trailer was supplied by F.M. Manufacturing.

Accounting and routing software is supplied by Clear Computing software for service management and dispatch, purchased following the 2014 WWETT Show.

“One bad apple can cripple you after doing poor service for two weeks,” says McReaken. “The tracking and routing functions help us to provide quality assurance and make us proactive instead of reactive. A simple customer relations management function allows us to track calls, and it interfaces nicely with QuickBooks. Operators can also place notes about whether a service call was blocked by the client and who should bear the cost of additional service.”

One of the challenges to growth for the business is a lack of waste transfer sites.

“We have one in Galveston and one operated by the Gulf Coast Waste Disposal Authority in Pasadena, just east of Houston,” says Kelley. “We need to dump twice on Monday and once a day for the rest of the week. However, hours are sometimes irregular and often there’s a lineup of trucks at the site. It’s a bottleneck that ties up our equipment.”

FROM POLICY TO PRACTICE

Kelley, McReaken and Vargo maintain open lines of communication and meet by conference call every Tuesday afternoon. While the owners set policy, Kelley helps adjust those policies to daily business practices. He recently convinced the owners that it was time to write off some bad debt accrued during early stages of the takeover.

“Sometimes it’s tough to lose that bad debt because it looks like potential revenue when it’s on the books,” says Kelley. “It costs money to chase down debts that aren’t collectible. You have to take the short-term hit to your top-of-line revenue and move on from there.”

However, a combination of solid service and an aggressive in-house sales strategy continues to drive business.

“Our revenue has grown by more than 10 times than what the company was bringing in when we bought it,” says McReaken. “With a professional attitude to contracts and an eye to increased route density, our profits are following suit.”


The law and the profits

If you write your own portable restroom contracts, chances are they contain holes big enough to drive a vacuum truck through them. As a business attorney and co-owner of Texas Waste Co., Travis Vargo wants PROs to make sure their contracts are working for them.

“Adopting stronger contracts will raise the bar of professionalism and get customers to expect an industry standard regarding terms of service and payment,” says Vargo. “You need to condition them on first contact as to what they can expect.”

For example, he notes that some clients who want to exit a restroom contract make unsubstantiated claims about substandard service.

“Our contracts contain two agreements, one for service and one for rental,” he says. “If they complain about the service without cause, they’re still on the hook for rental – and they’re free to contract with a third-party service provider.”

The Houston area is subject to hurricanes. “We require the customer to return the unit in a condition substantially similar to the one in which it was delivered,” says Vargo. “If the unit is destroyed by high winds because the client failed to secure it, the cost of replacing it is their responsibility.”

Likewise, clients who block access to units will receive an off-route service call only at a premium to the original contract.

Texas Waste Co. has also incorporated a clause prescribing interest charges on unpaid accounts.

“All you want is to be paid what you’re owed,” says Vargo. “If you’re negotiating on the original amount, you’re discounting your profit. This way you can negotiate the interest charge and still recover your profit – it’s an extra chip in your stack.”



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