As HARDI’s CEO, Talbot Gee oversees the association’s new and ongoing efforts to increase distributor members’ competitive advantage, and that of their committed supplier partners and customers, in their respective markets. This is accomplished through proprietary education and professional development, benchmarking and market data analyses, government affairs and advocacy, and the exchange of proven best practices. It all comes down to how an organization helps its members — in both good and challenging times.
Gee, who has been with the organization for more than 15 years, provides his unique and energetic guidance to develop the organization into the strong data-driven, member-engaged machine it is today. We wanted to hear what was on the radar for the group this year, and more about its initiatives, so I sat down with him to discuss the past, the present and what to expect moving forward.
Ruth Mitchell: After more than 20 months of being apart, HARDI held its annual conference in December 2021 with the theme of “Motion.” Please describe the theme’s meaning and how it was supported/delivered during the event.
Talbot Gee: You are right — after so much time apart, we wanted to bring to the membership deliverables that were targeted, informative and collaborative. From the content, the structure and members reuniting, the HARDI team absolutely hit it out of the ballpark!
We made some strategic changes and altered the schedule to provide more ways for informal networking to take place, and it all circles back to the motion theme: the motion that all businesses and companies were in the midst of dealing with a lot of moving parts — and typically in different directions. There are a lot of uncertainties, a lot of things that business leaders need to make sense of, and we wanted to acknowledge that.
So, we took those factors and broke them down, so each day had a mini theme. We also added more panel-type programs to have more voices involved in the content. As it’s been a long time since we have all been together, we wanted to hear more perspectives and views.
The first day was about catalysts; in other words, what was creating all this motion? Throughout the last 20 months — and more specifically, the last 12 — what were the root causes of this frenetic energy, both positive and negative? It was an opportunity to set the landscape and make sure everyone’s working off the same page: What really happened? What did the numbers say actually occurred? Once we had a common basis for the reality, we did a deeper dive on day two.
The second day primarily focused on the friction points: What are those headwinds that will be some of the bigger challenges our members and industry leaders face? What is in their way to accomplish goals? What are the things that we have inherited? What are we in the middle of that is going to make getting our jobs done that much harder? Let’s identify them so that we can push forward.
Which led us into the third: focus on how we can overcome the challenges and handle accelerating changes. We know, very clearly, that several things have an opportunity to be positives for us, but more than anything, are making things move faster than we would have expected — things such as technology, leadership, and culture.
You knew things were changing, but the last 20 months has accelerated those changes. What do I need to do as a business leader to be prepared, take advantage of it, and position my company to win going forward? So, it was a packed schedule as we brought all those ideas into focus and provided avenues forward.
RM: What was the one statement (or two) that HARDI leadership/team members heard echoed from members throughout the event?
TG: By just about every measure, it was incredibly successful for us. I think some members came in with some apprehension about how it would feel. And I would venture to say that after about 30 minutes in, you felt like it was almost like old times.
I mentioned we changed up the schedule; we also added what we called “micro sessions.” As the day wore on, the sessions actually shortened, which enabled us to cover more topics per day without totally exhausting and overwhelming the attendees. And guess what? We found a higher percentage of attendance at all our sessions than in previous years. Not only were members excited to see one another, but they were excited to learn, get that context, get their thought processes going.
I’ll admit, I came into it expecting the opposite. I thought we’d have a lot more informal networking while sessions were taking place, such as people hanging out in the lobby or outside meeting rooms catching up. I couldn’t have been more wrong. Every session was very well-attended; the members were engaged and locked in. It was a testament to why they’ve been so successful throughout all this.
This member comment really hit me: “The agenda was spot-on with the things distributors are wrestling with or debating about within their own leadership teams.” That is a testament, again, to the HARDI team. It’s a testament to our strategic plan, our leadership and our governance structure.
Two years ago, we transitioned into becoming a research and content organization. The point being that we should have the best finger on the pulse of the industry and what’s going on, and that should be driving not only our content, but also our solution development, our analyses, etc. We’re still fairly new into this plan, but I think we got a pretty good testimony that we are moving in the right direction.
RM: What are a few vital issues facing the HVAC industry right now, and how is HARDI addressing the issues and challenges?
TG: It’s probably not exactly front and center for every member right now, but I was in Washington to discuss the increased minimum efficiency standards for products such as split systems and air conditioners, which are remaining regionalized. There is not a sell through of existing inventory in the southern regions. And there’s some devil in the details on how this transition is going to take place because it also involves a change in rating methodology. Not only does the base standard change, but it’s a different metric.
So, it adds another layer of complexity and uncertainty. It’s an extremely big priority for HARDI. However, alongside the help of the Air-Conditioning, Heating & Refrigeration Institute, we recently finalized a consensus interpretation with the Department of Energy that resolves the issue for our members.
In addition, HARDI is concerned about a resources and cash crunch in the future. Right now, we have historically high inventory levels, both in terms of dollars and units. But this is the downside to inflation, right? The cost of your inventory is going up faster than one is necessarily collecting on it.
And distributors were extremely fortunate through the last two years as contractors, to their credit, paid their bills quickly. That is what enabled distributors to carry more inventory than normal and have these overweighted balance sheets because they’re converting cash quicker. They’re converting from cash to inventory back to cash much faster.
If contractors start going back to more normal payment schedules, we are in for a resources crunch. Inflated dollar cost for inventory being held without payment for a few extra days creates a tough scenario for distributors to maintain their margins. Add in an increase in inventory levels, and you go back to exacerbating the problem — you don’t have the product you need when you need it. And then we have dissatisfied customers.
This is another strategic concern we have — how do we make sure the contracting community understands that distributors are being increasingly scientific about their inventory and strategies, so they don’t get caught in a major cash crunch? Should demand start to recede just a hair, days sales outstanding calculations should start coming back to a bit more normal, or if manufacturers lead times start to shrink, it forces distributors to accelerate the conversion cycle. It’s complicated; I don’t think people realize what a science wholesaling really is.
In addition, we have an explosion of mergers and acquisition activity at the contractor level. That segment has performed so well that it’s attracted a ton of interest from outside investors. However, not all of the new investors are necessarily a net positive for the industry. In trying to do an immediate valuation boost of their companies, I think they’re making short-sighted decisions. That will hurt the supply chain, which ultimately will help will hurt the end customer. Should I be worried that one of my customers might sell to somebody I’ve never heard of tomorrow and totally change our relationship?
In my opinion, really good outside salespeople and territory managers will need to be more aware of their customer’s situations, especially their larger ones, so they can prepare and plan in case there are drastic changes in ownership and we need to help our members understand who all the various big M&A players are who are calling on their customers.
RM: Does HARDI offer assistance or outreach for members looking to sell their companies?
TG: At the conference, we had a number of sessions related to mergers and acquisitions/consolidation. We kept it at the highest level because there could be 100 companies going through it — and each with its own nuance. So, we focused on a few core guiding principles.
I’ve said for years that you should run your business as though you are trying to sell it — because then your focus is on driving valuation, which means value creation. Only companies that deliver great value get great valuations. So even if you have no intention of selling it, know what those drivers are. Look at your business as if you were an outside investor. Our Distributor Performance Dashboards service is, and has been for some time, one of the best valuation tools for distributors in our space and we expect even greater utilization by our members in 2022.
We try to keep an eye on what kind of trends can we pull out of this. With certain ownership groups, what do they view as keys to driving valuation for their new entities? If your competitor was acquired by a much larger entity, what impact is that likely going to have on you? Technology is a big one. Even if I am a small or midsized company, I can focus my resources to compete against those larger, more well-capitalized organizations.
RM: What are HARDI’s initiatives and goals for this year that will help to drive the incredible momentum members have had over the last 12 months?
TG: We were dissatisfied with our sales training programs, so we’ve pulled back on those. This year, we will be rebuilding a more effective territory manager/outside sales leader development program because that role has changed and the keys to being successful in that role have changed.
We also have our annual State of the Channel report. A big part of that is our voice of customer section, where we do a deep dive into almost 1,000 contractor companies, getting into the weeds of what worked and what didn’t in terms of supply relationships. Also, outside sales performance is one of the most uneven areas and one of the biggest opportunities for improvement. We are going to focus on helping members take their outside sales performance to a higher level — one that adds more value to their customers of all sizes, and understands the diversity of those customers.
We also want to make data, context and benchmarking more accessible and easier to digest. We are beta-testing a portal that will centralize all the benchmarking industry data and provide distributors an opportunity to overlay their own sales performance figures. Members can have a one-stop-shop view of key performance metrics. We think will make it easier for our team to interact with leadership teams members.
I can tell you one big evolution in services over the last several years, which we did forecast, was increased customization of solutions. The traditional association model was very much a “we build it and they will come” kind of thing. So, we stand out because we’ve been evolving the organization at being better at reacting to more personalized, proprietary assistance requests from members. We added Zack Perge, vice president of distribution strategies, to the team; his background is taking the largest corporations that you would have heard of and helping them solve very specific problems.
We wanted to bring that capability to a greater degree to our own members. Our core value proposition stays the same across our members. But the unique solution for ABC Supply in Topeka is going to be completely different than a unique solution for HVAC Supply in say, Kansas. We want to take our best practices or common knowledge or common value propositions and apply it in a very customized, personalized way to each member’s needs. And our market intelligence team is better equipped to do those sorts of special projects for our members.
RM: HARDI’s mission is making wholesale distributors the channel of choice for HVAC manufacturers and contractors. What other tools can assist members to fulfill the mission and succeed in this industry?
TG: I should add that the mission also includes helping manufacturers grow and improve the performance of their wholesale channels as well. We also work with manufacturers who are evaluating channel performance, trying to find ways to be a better partner for wholesalers to grow at a faster rate. So, all our focus is on making wholesale distributors as valuable and successful as possible. But that doesn’t mean you only work with wholesalers.
Manufacturers have a big role to play here. We work with manufacturers that have identified a market segment where their brand might not be as strong as they’d like. What can wholesalers do to be better at accessing that market and winning in that market? We want to be a partner in that regard, too. To view us as not just a buy/sell partner, but also a strategic partnership.
In addition, we do have a tool to “dust off and refurbish” —a supply chain scorecard. This is especially relevant now with supply chain uncertainties, erratic supply chain performance for a variety of reasons. Can we make some progress between a strategic supplier and strategic distributor, having a more data-driven conversation of what’s working and what’s not within their relationship?
We just scratched the surface years ago when we first built this tool. Now it’s time to take the added firepower we have — the growth and sophistication of our counsels— and build a better mousetrap, one that manufacturers and distributors can use strategically to take their performance to another level and differentiate themselves from their competition.
What we learned from 2020-2021 is that it was winners and losers in the market to some degree. Manufacturers with limited supply and capacity tried to treat everyone fairly, but it doesn’t mean that everyone was going to get an even allotment of the product they produce. Distributors needed to find ways to demonstrate why they were the best bet for that limited supply.
We want to take this supply chain scorecard to another level to help aid in the efficiency, speed, and effectiveness of those types of evaluations. Those who deserve to be winners can continue to be winners, and those identify areas for improvement, how to get better. And then the manufacturer can reward them.
RM: The COVID-19 impact will be felt for a long time, and I know HARDI was helping its members along the way. What tools or offerings were developed during the last 20 months that are now becoming a staple in a HARDI member’s toolbox?
TG: First off, one of the unsung heroes back in 2020, when we were in the thick of things, was
Guitze Messina, executive director, HARDI Mexico. One of the big issues in the supply chain disruption was the closure of so many plants in Mexico. And Guitze, with the relationships he’s built, turned our Mexico division into the tip of the spear. They helped organizations and manufacturers directly to get the local, regional or provincial leadership to be recognized as an essential business in those factories and get either exemptions or permission to get reopened faster than other businesses.
Manufacturers have done an amazing job taking care of their workers, their people in Mexico. Guitze put together a template that helped with identifying proper documentation, letters, etc., in the event a plant got shut down. Who do you go to and what process do you need to go through to get up and running again?
I don’t think many were aware how instrumental Guitze was, but those relationships in Mexico were huge, and he made a tangible difference.
During the peak of COVID-19, HARDI was a content machine — and the HARDI team crushed it! We focused on the biggest questions and developed best practices that were short and to the point — action items that needed to be done. An example would be the Payroll Protection Program (PPP). We ended up becoming experts in PPP. Alex Ayers, HARDI’s Director of Government Affairs, was able to distill for our members the process, what it means and how it works and in doing so became an industry-wide expert on PPP and EIDL loans. It was invaluable!
That is one example of how we were able to take what was happening and become an information center to help our members. Today, we have thousands of individuals in our membership who have subscribed to our various content channels. When they log in to our website, it curates all the content specific to that which they’ve subscribed. I like to think it made our members smarter businesspeople going through all this uncertainty.
In addition, the website was updated and has so many new capabilities that is content driven; we are in the process of version two with enhanced features.
When a member logs in, everything they need is at their fingertips — they don’t need to search for it.
Benchmarking reports are available within a member’s profile. So, if you’re about to go into a planning meeting and you want to see the last six months of trends reports, you can pull them up at a moment’s notice. If you want to pull up the last three economic forecasts for your region, you log in, it’s right there for you.
Going forward, we’ll be able to link directly to a benchmarking portal and see all of our performance statistics in one place. However, you need to be a participant and active member.
We’re also going to be adding a community model to enhance our council structure. So, if you’re interested in a council topic but you’re not a chair or vice chair, you can still be in the loop on all the conversations and have opportunities to weigh in on key topics.
RM: The future looks bright for HARDI members, with an engaged membership and strong leadership — including Chair Rhonda Wight, the second female to hold the post. What’s next for the organization?
TG: We continue to work with our leadership to improve some of our internal operations. Our new governance model blessed us was a phenomenal new finance committee, which helped us with some of our internal capital planning, cash flow, reserves management. And we saw the benefits of that in 2021; we were at the highest asset levels for the organization in its history, which gave us the ammo to establish the Legal Defense Fund.
This year, we’re investing about a million dollars in new initiatives. We know through our research and market intelligence where we need to improve. And we have the wherewithal because of our governance model and input from leaders like Rhonda Wight to invest in it and build something that wasn’t there at the beginning of the year.
We are also excited to have our Focus Conference in May —the tract conference for business unit leaders in Minneapolis. If you’re a director of marketing, analytics, or logistics, that’s where you get to deep dive into your skill set. So, we’re excited about getting back to that because we haven’t been able to do that in a while.
We definitely saw the numbers pull back in training, in terms of students and coursework completed. Distributors were running 120 miles an hour, they were stretched thin, or they didn’t have the capacity they needed. I understand, I just worry about long-term implications if it continues. I believe distributors need to refocus and find time to invest in the development of their people —many of whom have been thrust into different or bigger roles. Let’s not repeat mistakes of the ancient past where people learn entirely trial by fire and not receiving structured training and development for the skills, they’re going to need to be successful.
That will be a metric I’ll be looking at a lot this year. Do we see an uptick in the utilization of our training and development programs? Because if not, I’ll be concerned strategically for the longer-term health of our members and their retention rates of their key personnel. My concern is longer-term sustainability. We know that developed employees are retained employees. And when you stop developing them or investing in them, they start poking around looking for someplace else to go; we can’t afford to have that happen in our membership base.
And like every employer, we need to figure out what a post-COVID work environment will look like. What do we want to be as we continue to grow as an employer? What’s going to be important to retaining our stars and our key talent here? We’ve done a good job so far; a lot of things have worked well. But we also know that we can’t look at our 2019 playbook and hit repeat.
So, we’re evaluating more specificity around our flexibility model. We put a huge premium on the team being here in the office, which they have been since the end of June. However, we’ve always been a flexible office as well. So, if you need to take of something, you can do what you need to do — from taking care of the home front or if you need to work at home to get a project done, do it.
Now, it’s just a matter of building processes around it. With so much taking place, we need to ensure that everyone is using time effectively. I know that will be a priority for Rhonda as well because they too, have been having to adjust how they manage their own workforce. We like to think in some regards that we’re a Petri dish for our members. Let’s try something here within the HARDI team, see how it works and what sticks. And maybe we’ll learn something that benefits the members, too.