Krafting the Company

By Business Observer Staff
| 6:00 p.m. October 13, 2006
| 2 Free Articles Remaining!

Entrepreneurs

by Jean Gruss | Editor/Lee-Collier

Kraft's Robert Carsello built the largest commercial-construction company on Florida's Gulf Coast by being loyal to his customers, subcontractors and employees. But he's not so sanguine about the company's recent growth.

After 50 years in the construction business, you'd think Robert Carsello has seen it all. But he says he's never witnessed a building boom like the one that has just occurred.

Carsello, 76, is retiring as chairman and chief operating officer of Naples-based Kraft Construction at what is likely to be the peak of the residential building boom. Boosted by condominium construction, Kraft in recent years rose to become the largest construction company headquartered along Florida's Gulf Coast with $650 million in projected revenues this year. That's more than double the $290 million in revenues the firm booked in 2003.

But Carsello doesn't revel in the stunning recent growth of his company. "We were growing too fast," he says. "Volume exploded with the housing bubble."

A big part of Kraft's growth in recent years has come from Bonita Springs-based WCI Communities, which abruptly halted the previously planned construction of half a dozen condominium towers this year. WCI recently reported an 80% decline in new-home orders in the third quarter versus the same period a year ago.

As a result, Carsello estimates Kraft's revenues will drop 30% to 35% next year to around $400 million. The job of repositioning the company now falls on Fred Pezeshkan, Kraft's president and chief executive officer.

In a candid interview at Kraft headquarters in Naples, a reflective Carsello says he was a reluctant participant in the recent boom. He says his young staff was eager to jump into the action and he didn't get in their way. "I sat back and let them do it," he says.

But he wasn't as enthusiastic as his younger colleagues; "You're dragging me into the 21st Century," he recalls telling them.

The biggest challenge in recent years has been recruiting good employees. Kraft had to pay higher wages and the quality of the labor was lower than in the past, Carsello says. "We managed to get by; the profit eroded a little bit," he says. "You can't train when you hire so many people." Kraft's employee count nearly doubled in recent years.

On a grade of A to C, Carsello says some recent hires were Cs. "You'd like to think they're all 'B' or better, but they're not," he says. "Now that the business slows, we can replace the 'Cs' with the 'Bs'," he says.

Finding better employees is one silver lining from the drop in business. In addition, commercial construction is still going strong, especially in the public sector. For example, Kraft recently landed $85 million worth of contracts to build schools, he says.

What's more, the culture that Carsello and Pezeshkan created at Kraft will ensure that the company weathers any downturn. "Fred and I set out that we were going to be a quality contractor," Carsello says. "I'd rather make less and have a very satisfied customer."

One of the keys to the firm's success has been its excellent relationship with its subcontractors. "We treated subs as professionals; we respected them," Carsello says. That means developing a long-term business relationship with subcontractors and paying them when they want to be paid. "I can pick up the phone at 10 a.m. and have men here at 12:30," Carsello says. "We've never had a sub sue us in 35 years," he adds.

Building Kraft

Born the son of a Chicago bricklayer during the Great Depression, Carsello landed a scholarship to study electrical engineering. Later, he obtained a degree in civil engineering so he could satisfy his desire to build. "It was always something I wanted to do," he recalls.

He and George Kraft were both superintendents for a Chicago construction firm when Kraft moved to Naples and started his own construction company. Kraft landed a big job for Naples Community Hospital and persuaded Carsello to move to Naples in 1970 to help him.

When Kraft died suddenly at age 48 in 1974, Carsello bought the business from Kraft's wife. He signed a note to her and paid her over six years. The company struggled at first because Carsello says he wasn't as good a salesman as he was a builder. "When I bought the business, [annual] volume was equal to what we do in a day today," he says.

Then, in 1979, he met Pezeshkan through a mutual friend. Pezeshkan had fled Iran after the revolution and was eager to start over. "I liked him personally and he was much younger," Carsello says. "The first 10 years he respected my gray hair," he jokes.

It was a perfect match. Pezeshkan's marketing and business-development acumen was a complement to Carsello's skills as a builder. In fact, Carsello attributes Kraft's success to the fact that each partner focused on separate functions at the company and didn't interfere with the other; Carsello oversaw construction and Pezeshkan focused on business development.

"Our partnership has been better than many marriages," Carsello says. "It really worked."

About seven years ago, Carsello decided to eventually retire and sold 20% of his shares in privately held Kraft to six top employees. Since then, he has divested about 4% to 5% of his shares each year and the number of employee-owners has grown to 11. Carsello anticipates selling out his shares in about three years.

Building the Kraft culture

The corporate culture at Kraft Construction revolves around satisfying three groups of people: customers, subcontractors and employees.

Satisfying the customer is easy to say but hard to do. The key is to remember that the owner is king, even after the builder has finished and moved on to other projects. "We honored our warranty," says Robert Carsello, Kraft's chairman and chief operating officer until he retires at the end of the year. "If we didn't do something right, we'd fix it."

Sometimes Kraft fixed things years after it had finished a project. For example, the company once built two eight-story buildings and the shutters became loose four years later. "We re-secured them without a word," Carsello says.

In another incident, a sink fell off the wall in a bathroom at a school 12 years after Kraft had built it. Rather than blame rowdy children, Kraft investigated the incident. The company fixed 20 sinks after it discovered they had not been properly bolted into the wall.

With subcontractors, Carsello says he demands service and quality. In return, he promises to be loyal and pay them when they want to be paid. "I liked to sit down with subs and tell them it's my intention to develop a long-term relationship," he says.

When disagreements with subcontractors inevitably arose, Carsello says he always settled them amicably and notes that none has ever sued Kraft.

Over the years, the company has developed "Kraftisms," a manual that contains all the things that will make the next job easier. The company has compiled them gradually as it finished one project after another. Carsello keeps the document close to his vest, but he points to a few items such as banning snack trucks from job sites in the middle of the morning. Visits by the 10 a.m. snack truck distracted the workers and slowed a project considerably. These are lessons it has learned over time and shares with its subcontractors.

Finally, Carsello says it's just as important to treat employees with the same respect. "They are a valuable part of our organization," he says.

When he decided to retire, Carsello rewarded key employees by selling them stock in the company. These included two key construction estimators, for example. "We didn't want to lose them," Carsello says.

-Jean Gruss