Date: June 25, 2017

To: Joe Keipp, CEO

From: Nicholas A Flinn, Senior Estimator
RE: The need for a commercial drywall division

Purpose
The purpose of this proposal is to expand our residential drywall division by adding a
commercial division. Commercial drywall will allow us to maximize our resources outside of
our current market share. Furthermore, a commercial division will allow us to secure customers
that have not solicited us due to our residential status.

Current Problem
Since the economic crisis of 2008, the residential market has seen a steady, yet slow climb.
Home builders and general contractors have dissolved and reformed into a market that would be
considered elite by most. At the pinnacle of building, 90% of the homes built in the St. Louis
market were constructed by the top 10 builders. Currently that same 90% of homes are built by
fewer than 5 builders with the top 2 builders controlling 65% of the market. Although we were
able to maintain our customers as the market downsized we unfortunately were not able to hold
onto the same market share we previously had. Out of the top 5 builders in the St. Louis
industry, we are contracted by 3 and of the 3 we share that work with another drywall contractor.
In reviewing the history of our company, we can ascertain that this market share will not grow
past what we currently have. Furthermore, in the past 4 years we have been in what I would
consider a holding pattern. We have shifted our focus to sustaining the customers we have,
rather than actively seeking new opportunities. We have enjoyed some success in the multi-
family market but only in a residential application. This includes, apartments (4 stories or
fewer), senior living facilities, row or townhomes, and condominiums. Unfortunately, we are
excluding these same market types when they become what is deemed commercial by the
governing trade unions. A senior living facility that employs nurses is considered commercial
and therefore we pass on the opportunity to bid it. Our main reason for passing on this work is
because we do not have the historical data to rely on for proposing these different applications.
This is cutting us out of a significant portion of the market. It is also stifling the growth we need
and will not find in the residential market.

Other factors leaning us towards the commercial construction industry is lack of competition.
According to the Carpenters Union of St. Louis and Kansas City, there were more than forty
commercial drywall companies operating in the St. Louis Market. Currently there are less than
twenty operational commercial drywall companies. This is due to the economic downturn which
forced many of these companies to close shop. With competition at an all-time low and
commercial construction steadily rising the time is ripe for an entry into this market.

Statistical Data
In a study done by Keven McCook, Senior Director of Contractors and Services, commercial
construction has nearly doubled from 2010 to 2016. He also stated in his report that this growth
is likely going to sustain itself in a 5-year outlook. Other areas that are thriving in commercial
construction, hotels. According to Keven McCook, hotel construction spending is higher than
what it was 2006. Reasons behind this boom in hotel construction is travel improvements,
convention centers returning, and an occupancy rate of 71.9%. This will be our strongest point
of entry into the commercial construction industry. Over 60% of hotels built in the St. Louis
area were built out of wood framing. This is as close to a residential style drywall application
that we will find yet it will be considered commercial. This will allow a smooth transition and
get us our first foot hold in commercial building. Currently, hotel starts in the St. Louis market
are up 22%.

Workforce Issue
With the increase in both residential & commercial construction there has been an overwhelming
strain put on the St. Louis workforce, particularly in field labor. We have seen over the past few
years our drywall installers flock to commercial work to take advantage of the $8 more per hour.
Stemming the flow of this tide has been an ongoing issue. Rather than incentivizing our
workforce to stay in the residential market, I believe we would benefit by offering commercial
work periodically. This will allow them to stay with our company, yet make commercial scale.
Once again a perfect entry market is hotels. Using our residential drywall installers in hotels and
paying them commercial scale will not only allow us to retain the workforce we have, but recruit
others from commercial contractors.

Proposed Solution
In order to expand our limited market, I propose that we aggressively chase these commercial
opportunities that we would have at one time passed on. This will provide the economic growth
we are looking for. To facilitate this directional change, we will need to create a new position
that can work in a duel role setting, a hybrid. The duties of this new position will include
maintaining relationships in our residential market while actively pursuing commercial projects.
Exploring the varying production rates in the commercial industry to better understand the
bidding process along with establishing a systematic bid form will be part of the new positions
roles. This position will require an estimator/project manager of a senior status or higher.
Cost
We can expect a salary range for this position to be $100,000-$110,000, which is an industry
standard. In adding this position, we will be exploring a new market and it will be essential to
fill this position with someone who is well versed in the practices that have made our company a
success. For these reasons, I would like for you to consider myself for this new position. I have
been with the company for the better part of a decade, working through the most turbulent times,
all the while keeping profitability above those of our competitors. I have also established the
connections necessary to facilitate this new directive. I plan to split my time evenly, spending
half my time estimating residential and the other half estimating commercial. This means your
initial investment in the commercial division will be in the range of $50k-$55k for the first year.
In perspective, the average drywall contract for a hotel is roughly $1 million. At 10% margin,
this will result in $100k in profit, doubling your initial investment in the commercial division.

Timetable
To say the construction industry is volatile would be an understatement. The peaks and valleys
of building can go just as fast as they come. Knowing that, we need to move on this transition as
hastily as can be allowed without causing detriments to our in place work flow. This is another
reason why I would be an ideal candidate for this position. I can focus my time accordingly as to
not disrupt our current workload.

Conclusion
As a dedicated employee, I have proven myself and my abilities time and time again. I believe
that the sensitivity of this position, musters the skills of someone you trust. By promoting me to
this position you will be strengthening your companys market share while adding revenue and
profit. Please consider this proposal with the utmost regard. I believe that the timing is
impeccable for this move and I am ready to take the helm. If you have any questions regarding
this proposal, feel free to contact me accordingly.