<meta property="og:url" content="https://www.wallprotex.com/conversations-around-the-corner/jim-swanson" />
July 1, 2019
Jim Swanson is the President and CEO of Kitchell Corporation. Founded in 1950 as a commercial contracting business, Kitchell has since developed into a holdings entity for five companies. Kitchell consistently ranks in ENR's Top 400 Contractors List.
With a degree in finance from the University of Michigan, Jim worked in consulting until 2008 when he transitioned to CEO at Kitchell. In our conversation today, we talk about influential teachers, first-year consultants, the strengths of employee ownership, and knowing what you don't know.
Jim: I was born in the city of Detroit in a hospital in the city, but my family lived in the northwest suburbs of a town called Birmingham. I was, as you said, youngest of eight, seven boys, one girl, and had a fairly stable life. My father died when I was relatively young. I was eight years old. I had two brothers in college at the time, both at Michigan State, kind of obviously a world-changing event for our entire family. My father was a businessman, and my mom stayed at home and kind of tried to chase eight kids around, which was a challenge as you can imagine, especially with seven boys. My father built a pretty good stable family. He was planned pretty well, so my mom was able to, I mean, she had to go to work. She actually worked for a little development company, a couple of brothers in Birmingham that own apartment buildings and kind of did general office management and took care of their business for them. She was a saint. She got all eight kids through college. We've all done very well. My mom passed away as well in 2001, so I've been, you know, without our parents for a long time, but she really did a good job, and my dad did a good job of kind of setting the stage for responsibility and, you know, hard work and so forth.
Matt: So, you're eight years old when your dad passes away. Do you remember how your older siblings responded to that and how it was different from how an eight-year-old responds to that?
Jim: Yeah, I remember it quite vividly, he died six days before Christmas, and my mom was a pretty strong woman, Catholic upbringing and was dead set on having a proper Christmas with the family and, you know, all the stuff that goes with that. My older brother, Steve, who I'm probably closest with, reacted very negatively and challenged. It was hard on him because a huge change, and then, you know, the older ones felt like they had to change their responsibility in the family, and my mom was just trying to rein everybody in and trying to get them to be who they are and move on with their lives and so forth, so it was a big challenge. One of my brothers actually was adopted. He's a cousin. He had a challenging upbringing, and so my mom and dad actually adopted him, and he thought he didn't have a place to live anymore and he kind of packed up his stuff, and he was gonna leave. My mom brought him back in, and...You know, just complete chaos but we were raised in a traditional Midwestern sort of Catholic family where we weren't lovey-lovey, touchy-touchy, you know. Hugging my mom on my way to college was kind of one of those awkward moments where you did the goodbye, but we were all loved. And I know because I was the youngest, my mom loved me the most.
Matt: So, the processing of that event in your life was a little bit like kind of move on and slowly process a big life change over time. Or did you have a moment where you're kind of, like, really came to grips with the reality of not having your dad around the home?
Jim: I was so young. I grew up without that father figure in the house, and I knew I wanted to go in business because that's what he did, and he had done pretty well with that. I didn't know exactly what I wanted to do with that. The foundation was set for me to try to go in that direction and seeing that, you know, my mom got into business when she had to go back to work.
Eric: You grew up respecting and appreciating businessmen and women and that world. That perspective, how did it impact your education?
Jim: Well, I went to an all-boys Catholic high school, and really got into economics in that and then they had kind of business class where they would teach you a little bit about bookkeeping and how to manage money, and some of that stuff. It was kind of neat class and really enjoyed it. And then in high school, from a kind of opening my eyes perspective, I had a teacher, his name was Pat McDunn. He had been a Jesuit priest. He quit the priesthood, got married, had a baby and bought an Irish bar and he was an English teacher at my high school, and, you know, we read a ton of stuff and read stuff that you wouldn't ordinarily get in a traditional Catholic high school. We read a lot of Jewish authors, Chaim Potok, Saul Bellow. And really he led me on, tried to tell us, but we're in high school, so we're not really very bright, but truth is knowledge and knowledge is freedom. Kinda got me into expanding and trying to look at other things in different ways and looking at how the suburbs of Detroit can keep us a little bit sheltered from the real world and try to keep my eyes open for that. So, anyways, that actually prepared me a little bit for college and, you know, where I was gonna go after that.
Eric: So, a high school English teacher opened your mind to thinking outside of your kind of small world there.
Matt: At this point in time, you're in high school, your older siblings are significantly older than you, and they're in the workforce. Did you kind of look at what they were doing and say, "Oh, this is what I like, and this is what I don't like?"
Jim: You know, what's pretty cool about my family, at least, when I tell people is everyone is moderately successful in their own way or shape or form. And I did look at that and say, "Look, you know, I've got siblings that are doing things." However, I think I just kind of always wanted to go in a business direction. I'm probably the most numbers-focused of all my siblings, and so I knew I was...I really liked economics and math and statistics, but, you know, I looked at them, I guess as role models to model some of my behaviors as I went forward. But I think I had a more focused business perspective.
Matt: How did like the auto industry in Detroit affect you at all? Was that always something that was present and you always looked at it as like an opportunity, or you were never in that world?
Jim: Interestingly, you know, about one out of every three of my friends or neighbors were directly 100% tied into the auto business. Had friends that their dads were executives or parts suppliers for General Motors or Ford or whatever. My Dad was in the food business. He was a food broker, which is sort of like a manufacturer's rep for food. Kind of a funny aside, all the stuff that he repped, I now hate. I won't eat it. It was like pickles, tuna fish, applesauce, raisins. We used to give out raisins on Halloween.
Eric: Oh, man. Oh, you were that house.
Jim: Yeah. And on November 1st I was picking up little boxes of Sunmaid raisins off our front yard. So, it was pretty good. It was torment.
Eric: Yeah. So, you would get home, and you would do that thing where you'd say, "There's nothing to eat in this house," and your parents are like...
Jim: Right. Yeah, there's stuff everywhere.
Jim: But the auto industry, you know, through ups and downs, things would change and move around a little bit. I know that in the late '70s, early '80s, with super high interest rates, you know, I can remember how difficult things were in Detroit and the real estate market and things like that. But I was pretty clueless as a high school kid, so I had a good life, and we had a lot of fun.
Matt: It's interesting, a high schooler, I don't frequently think of them getting into economics. Do you remember, like, why you thought you got into economics? Was there a particular author or ideas that really interested you?
Jim: I think the teacher I had in high school, Mr. Rattamaker [SP], he was really good and got me interested in it. I graduated from high school in '83. They also had a little computer programming class in there, and I just found it interesting, and both the economics and the statistics in high school was fascinating for me, and I enjoyed it.
Eric: So then, after high school, you decided to go to the University of Michigan, is that correct?
Jim: Yeah, however, I had always a 100% planned on going to Michigan State. My mother's mother had gone to Michigan Agricultural College. Both of my parents graduated from Michigan State, and the majority of my siblings went to Michigan State. I had applied and gotten into Michigan State and then sort of on a whim...I was a pretty good student, I wasn't a big Michigan fan, I am now...I applied because I figured, well, let's give it a shot. I also applied to Notre Dame and didn't get in. That makes me angry sometimes. When I applied to Michigan, I remember I had gone to see a guidance counselor at Michigan and they had my file and I kind of laugh because I had done my application in ballpoint pen because I wasn't really totally serious about going there. But I got in, and I figured, well, I should go there, it's a great school, and went there and loved it.
Eric: And you had strength in math, so you decided to major in finance just based on your strengths kind of?
Jim: Yeah. So, at Michigan, at least at the time, you entered into the liberal arts college and then after two years, you'd apply the business school. During that time they do big seminar weed out classes. So, you take two economics classes, two accounting classes as a lower classman, and then you apply to the business school. And so, I went through that process, then went down the finance track. Had a great professor, Professor Pilcher at Michigan, and I remember, and I don't know if this is completely accurate, but at my business school graduation, not the big undergrad graduation, but in our small business school graduation, he stood up and shook my hand, and he was sitting the entire time and just because we had a good relationship. We talked a lot about stuff, and he is an older guy, but really I kind of engaged with him and understood the wisdom of his learning and so forth.
Matt: Do you remember exactly what courses he taught?
Jim: Oh, gosh. No. I think I was in more of his upper-level finance classes, you know, that I just remember him mostly.
Matt: Any moment in college where you didn't think you wanted to be on the finance track or you pretty much got in, you were like, "All right, this is what I'm doing, I'm gonna be the finance guy?"
Jim: I knew I wasn't...you know, accounting was, at the time, a little bit too detailed and so many debits and credits and the whole sort of journal entries and the general ledger and all that stuff was just too much detail. And if we get to it later, I'll tell you, I've changed my opinion on that a lot because it's important, but finance was, you know, so esoteric and you could do different things with it, and you could go Wall Street, or you can go work in a company, do treasury, you can be an analyst. There's so many things you could do with it. I was just more attracted to that. And I knew I couldn't do marketing. I got a C in marketing in college, and I think I may be the only person that's ever gotten a C in marketing. To this day, I struggle between what sales is and when marketing is and, you know, I think I get it. Just have to support all that stuff. Oddly enough, my son, who graduated from college a couple of years ago, he got a C in marketing. And then I was talking to another guy who runs a hospital here in Arizona. He went to University of Michigan, and he got a C in marketing. So, apparently, it's not totally uncommon.
Eric: All right. So then, after Michigan, how did you land in your first role?
Jim: So, the economy...It was 1987, the economy was pretty good, and as a finance person coming out of the University of Michigan, a lot of companies come to recruit there. I knew I didn't want to go do the New York thing. It was just a little bit too overwhelming for me, so I interviewed mostly with banks and consulting companies. So, I had some opportunities in both those things coming out of college. I selected a company called Pearson Consulting, which was the company that did economic consulting. They worked for lawyers in litigation, or they worked in regulatory matters, and it was a fast-growing company. It was started by some partners that left Arthur Andersen so that they could focus on this other kind of business that they wanted to do, and I wanted to go to Chicago, and that job put me in Chicago. So, I put everything that I owned in my Toyota Celica and moved to Chicago, got an apartment, and then we had a two-week training class to kind of get us up to speed.
And on the last day they said, "You're going to San Francisco to work on a project," which is awesome. And I traveled to San Francisco for about a year. In fact, kind of it's my first tie into construction. We were working for Bechtle and PG&E on Diablo Canyon Nuclear Power Plant, and our job was really the accounting, the finance side of it. The thing was I think supposed to be about $1.8 billion to build and they ended up being at $5.7 billion because they had built it on a fault that they didn't know about and they had to re-engineer the whole thing and...
Eric: Oh, my goodness.
Jim: ...they had this thing called a "mirror image problem" where they actually piped a significant portion of one of the reactors the wrong way.
Matt: Oh, my.
Jim: Supposed to be a mirror image and they piped it differently, and so all this stuff had to be reworked. But I was working on really the financing costs, this thing called allowance for funds used during construction, and it was, you know, a lot of detail. But it was a ton of fun. I learned so much. I think we had between 70 and 100 consultants working on this project over this timeframe, and we worked a ton of hours, literally. You know, we'd work, you know, 60, 65, 70 hours a week working the details of the numbers because the goal was for PG&E to get this in the rate base. And it was very controversial, and we needed to do a really good job, and so we worked with lawyers and engineers and all this stuff. But it was a great time, you know, living in a corporate apartment and I'm getting per diem, and I was able to come out of college not making very much money, I was actually able to save some money that first year. It was great, loved San Francisco, and met my wife there too as well. So...
Matt: I'm not 100% familiar with how things like that get financed, but there's a budget. They make a mistake, they go way over budget, and then you guys are kind of crunching the numbers to show where money was used and how to get more money. Is that kind of...?
Jim: Well, how was used and they're going out to, you know, bond markets to get the financing, but eventually, the Public Utilities Commission, because it's a monopoly, has to approve the spending. And so, what we had to do is say, despite the fact that it was over budget by $3 billion or $4 billion, it was still reasonable, and the things that drove the budget couldn't have been foreseen or avoided.
Jim: In essence.
Matt: So, you're acting as the go-between kind of between, like, the public money and the...
Jim: Yeah. I was a first-year undergrad out of college calling myself a consultant and, you know, I told one of my high school friends' fathers, I just told him what I was thinking, "I'm a consultant." He starts laughing. He's like, "What do you know?"
Eric: Yeah. Right. So, that's an interesting thing. Like, what is your perspective on first-year consultants? Like, they get thrown into very important decision-making processes, but really they don't know much. What's going on there?
Jim: Well, and it's true. And really to finish the story with my friend's dad, he said, "Well, you know, there's really just two components in business. There's capital and there's labor." And he looked at me, and he goes, "Your labor." And I think those first-year consultants, you know, they're there to learn and to contribute, but you have to have good direction. A person leading a consulting engagement needs a lot of data, and they need it crunched, and they need to put together in a way that it can be used. And so, I think kids out of college, and if you look at our...we just started a bunch of interns here. I told them the best thing they can do is, you know, just be a sponge. So, now you're gonna build your own skills in that first year, but you're also providing value because they need output and it's more cost-effective for the first-year person to go collect data and crunch through it and put it in a way that is organized the way that, you know, the more senior people need it organized to be used. So, I think a consultant is maybe not the right word, but they use it, but I think there's plenty of utility. I mean, people have to gain experience. I think part of moving forward to today, it's harder and harder...because everything moves so fast, it's harder to get people trained because you need to keep moving, but it's so important. You need to give people experiences and get them involved.
Eric: So, at this point in time in your life you're based at Chicago, but you're traveling weekly to San Francisco, or are you permanent in San Francisco?
Jim: Somewhat permanent. We had a really good deal because we were working so much and they wanted us to work. They kind of said, "If you work on Saturday, because I need to get all this work done, instead of flying home, you can fly a friend out."
Jim: It was great. I flew a lot of my college friends out. We would go out and, you know, have a good time but I still kind of work on Saturday and it was a great deal, and sometimes I'd go back to Chicago. I mostly stayed in San Francisco because I really liked it.
Matt: You do trips up to Yosemite at all?
Jim: I went camping a couple of times in that direction, and I can't tell you exactly where we went. We would go up through Muir Woods and go up Stinson Beach. That's always a good drive, you know, for a day to do that with friends and go to Tiburon and have breakfast across the bay, great place.
Matt: And then you said you met your wife there. How did you meet your wife?
Jim: So, I was based in the Chicago office of this company and working in San Francisco, and she was based in the Phoenix office of the same company, but also working on the same project. We were in completely different teams, but we met there and had a very, very good life together. So, we met there when the project started winding down, I went back to Chicago, and she went back to Phoenix. And when I back went back to Chicago, I had found that I had missed a year with my peer group and my peer group had established relationships with, you know, the people that manage them and the partners, and I was kind of a newcomer. I had good experience, but nobody knew me. And so, it was really kind of a hard, awkward moment because I had to try to build those relationships, but I was almost like a brand new person, and they were hiring new people. So, it was a little bit difficult.
I loved Chicago, but I got an opportunity with that company to move to Minneapolis and help them open an office. So, I went up there with one other guy, and we got office space, and we just started to work on developing an office there. And that was very cool because the guy I worked for did less of kind of the lawyer litigation grinding stuff and more turnaround and restructuring. So, working with troubled companies, that was a ton of fun to me, and I learned so much about finance, and accounting, and reading financial statements, and this is kind of the time in my life where I felt like finance versus accounting became...maybe had been a decision I should have made differently. But very cool, we worked on all sorts of different things, you know, Mexican food chain restaurant that went bankrupt, a boat trailer manufacturer. We worked actually on a boat company. Lots of different kinds of things, a trucking company.
Eric: Any good turnaround stories?
Jim: It's interesting. You know, if you look at the boat manufacturing company, it's called ShoreLand'r, it was in Ida Grove, Iowa. They made a very high-end boat trailer that was very well constructed the way it was painted and designed. Instead of rickety old metal fenders, they had plastic injection molded high-end fendors that the brake lights set into them. And if you can imagine a boat trailer, if you're looking and thinking about one, sometimes they're like galvanized metal, and they've got the metal fenders, and they just have these attached brake lamps and so forth. So, this is a very high-end, and this is in the late '80s, early '90s, there's this economic downturn. The boat business was suffering, and boat manufacturers or boat dealers want the money to go into the boat, not the trailer. When you're buying a boat, you're not necessarily going, "Hey, I'm gonna buy that trailer. That's awesome." And so, they suffered and had to kind of learn a tough lesson. But you go into these companies, and they're started by entrepreneurs. The guy who started it was very entrepreneurial. This town, Ida Grove, by the way, if you've heard of GOMACO, the paving machines you see them out on the highway, the guys who did the trailers, his brother started GOMACO, and they're in the same town, and they didn't like each other.
Jim: And they're both very successful, entrepreneurial. But you get into these companies, and you find out that you're transitioning senior leadership, so the son-in-law is taking over the business inventories out of control, their lines of credits are tapped, and they don't know how to value, you know, the security behind the asset back lending. And so, you're trying to help them put together models and sales models that go out into the future because they're not prepared to do it. It's incredibly challenging. And I learned to develop really detailed cashflow models that go out into the future and, you know, trying to work through this. Again, I'm still pretty young. I'm probably four years into my career. Still always trying to learn, but here I'm now I'm starting to add more value because I can think through some things and present things and ideas to people.
Matt: This is kind of, like, your first foray into looking at small, medium-sized companies' financial statements. You're learning all about how the financial statements drive the business they're doing there, and they're struggling, and you go in with what major piece of advice?
Jim: Well, like I tell my kids sometimes, when you find yourself in a hole, stop digging. So, you really need to kind of back off, figure out, you know, where you're standing. I try to look at every day in my business career approaching things of the best thing to know is what you don't know because I think that keeps you out of trouble. It is an important lesson because if you are humble enough to realize there's a lot you don't know, you can find the answers, and the people that you're working with probably have them, they just haven't organized them the right way. And so, I learned that lesson a year or two later, on a different project where we are doing a turnaround with some psychiatric inpatient hospitals. Insurance payment world had completely changed from an inpatient focus, so insurance companies stopped paying for it. So, these inpatient psych hospitals were really suffering. And so, they're in bankruptcy, and we are working with them, and we're in a conference room and completely unprepared, and we'd flown into Nashville and had this meeting, and all these people showed up that we didn't expect and they wanted a bunch of answers.
And myself and the guy I worked for in my next job, Darryl, you know, struggled at first, but I watched him sort of maneuver into more building rapport with these people by knowing that we were surprised, but asking the right questions to kind of build rapport and start gathering some data and walking them. It was just really pretty elegant how you do that, but at that moment, I didn't know what I didn't know, and that's sort of scary. So, it's better if you come in and say, "Well, I don't know this industry. I'm not sure about how all the payment works or I know we need to do a lot of research, but we have the skills." Business problems are 80% the same. It's just 20% nomenclature difference is the way people talk about stuff. And so, that's my background. I think that's how I fit well here at Kitchell.
Matt: So, you and your partner get called in for a meeting with this client, and this is the first meeting or is this like...?
Jim: I think this is the first face to face meeting.
Eric: First face to face. So, you've been talking a little bit over the phone, and they go, "Okay, let's have a big meeting." You and your partner walk in, and they have a team of people who are ready to ask, like, the nitty-gritty questions. Do you remember, like, the first question that was asked that you were like, "Oh, no?"
Jim: Well, living in Minneapolis, I've left Peterson Consulting, now I'm working for Ernst & Young in their special services group still doing kind of this turnaround restructuring stuff. And we walk in...I think what I remember most clearly about that meeting because it's probably that was a long time ago, 30 years ago, almost 28, is feeling almost physically ill because I was not ready. I think we had, you know, some general notes and we kind of had some information on them, but we didn't know anything about the business yet. I think there was some basic things we didn't understand that kind of surprised us about the business. I don't remember specifically what it was, but it was a good lesson to be more prepared. And I think that was a failure on my part because I could tell my partner, Darryl, who I worked for, his leg was bouncing, you know, because I could tell he was pretty nervous or upset about the way this was going. You know, you can not know something about something, but you got to be able to ask the right questions and ask good questions, and that's why I watched him do that and it was pretty powerful.
Eric: Do you remember, like, how he started kind of diffusing the situations with the types of questions he was asking?
Jim: He would ask sort of the finance-y kinds of questions and start I think educating himself, so he'd get them engaged in the conversation so that they can see that you're, you know, maybe asking the right questions. Again, 80% of business problems are the same, just the nomenclature. And so, talking through average length of stay, you know, which was kind of a healthcare term, or a hospitality term, or your unpaid care, your insurance reimbursements, all those kinds of things, and then just start talking through those things. And then you start talking about cash. How do you manage your cash? How do you budget? What are you forecasting? And then, from an operations perspective, you got to start getting into the staff and the talent, and do you have the right people on the bus? You know, the Jim Collins deal. So, it's really just having that dialogue and being comfortable in a setting where people are gonna look to you for answers, but you know less than everyone else in the room when you get there.
Matt: Right. Do you have an example of where you learned from your coworker Darryl, and then you got to apply it yourself? Or this could maybe even be a recent example, like when you walked into a room you thought, "Okay, I need to now go in that mode where I...getting myself up to speed but not looking like I don't know anything." Or diffusing a situation or something along those lines?
Jim: Well, you know, an interesting way to talk about that would be how I got to Kitchell.
Matt: Okay. Yeah. Let's go there. How did you get to Kitchell?
Jim: So, Kitchell will be 70 years old in 2020, so next year. A hundred percent employee-owned. Started in 1950 as a contractor here in Arizona. Grew over the years. We have five different operating companies now, two general contracting businesses. We have a program management business. We have our own development company. We have an air conditioning and refrigeration wholesale supply business. After my wife and I started having kids, she wanted to get back to Arizona. She's from here, so we got an opportunity to come down here. I worked for Arthur Andersen, and then I got into a different kind of consulting with them where I was doing business process outsourcing. So I ran a business that did back office transaction and technology stuff while I was at Arthur Andersen for about seven years, and they decided to sell that business. So, I went through a transaction with them, and they sold the business to a company called Affiliated Computer Services, which is a little bit like EDS but still big but smaller, Xerox owns them now.
So I'm a finance operations guy with a lot of turnaround restructuring experience. While I was in Minnesota, I ended up getting my CPA as a non-accountant, and I need to say I'm licensed but not active. So, I'm a complete finance guy. So, the guy who had been in the managing partner at Arthur Andersen before I left, and he'd retired before I left, before they sold the business, was on Kitchell's board. And he called me one day. I remember I was in Milwaukee on business, and he said that the CEO of Kitchell was working very hard on a transition plan. They'd been conducting a national search. He wasn't really happy with what he was getting. "Jim, would you be interested in interviewing?" And this is a true story.
I said no. I was 42 years old. I don't know anything about construction. I don't think I'm ready to be a CEO at all, but awesome, thanks for thinking of me. And by the way, this guy's name is Jack Henry. He's still on our board, but he also went to Michigan, so always kind of liked me. I don't think he got a C in accounting though...or a C in marketing, excuse me. A few days went by, and I was thinking about this and the job I was in at Affiliated Computer Services, I would joke with people that I was a mid-level executive in a Fortune 500 company and doing well. But public companies were really not something...really not my cup of tea because they're really hard to work in, and the things that they want you to do are counterintuitive to what you're trying to do for your clients sometimes because it's all about the 90-day cycle and crazy moving stuff every 90 days and you're not thinking 2 or 3 years out.
So, I called Jack back and, you know, I was thinking maybe there was an opportunity to get involved someday as a CFO or something like that. So, I called Jack back, and I said, "Yeah. If there's still an opportunity, I'd like to meet with Bill Schubert," who was the retiring CEO. So, again, this goes into a world where...back to the story where I really don't know anything. I need to know what I don't know. So, I met with Bill, was in July, and it was supposed to be a half hour meeting, and we met for a couple of hours. But what was interesting is he was really more interested in me as a person, and my family and experiences. He was asking me a lot of really good questions. You know, I took the position. I said, "Look, I don't have any construction background," and asked him, "Well, why are you looking at somebody that doesn't have that?"
And, you know, the answer, which is still true today, is that because we have five operating companies, we have very talented presidents and each one of them they report up through the corporate office. And so, you know, his job isn't completely operational, like, he can get operational, but his job, which is now my job, is much more about business planning, strategic planning, succession, managing the balance sheet, finance, protecting, you know, making sure that our sureties are happy with where we're going and how we're running the business. And then, because we're employee-owned, making sure we have the resources or the capability to transition the company from owners, take care of our retirees and get the company ready for our next wave of owners.
So, asking those questions kind of got me a little more comfortable. But then the process...so again, still I don't know anything...was they had industrial psychologists really people that Bill had hired executive transition company that their job was executive transitions. And they came in and really were working with Bill on defining the job and then working with Bill to match candidates against the job profile using, you know, interviewing, and testing, and all sorts of, you know, whatever industrial psychologists do. I know I took...I don't know. I remember this moment they had me do all this online testing, and I came into the meeting with the psychologist, and I said, "You had me answer 844 questions," and they said, "We knew you counted."
Matt: That's good. Well, you're a numbers guy.
Jim: Yeah. Then I had, you know, panel interviews. I had individual interviews with board, panel interviews with the company presidents, panel interviews with what is my corporate services team, which is accounting and finance, IT, HR, legal. And so panel interviews with them. And then select individual units interviews with people inside the company, senior executives, and so forth. It was a really rigorous thing because when I started in 2008, which by the way was, you know, right before the end of the world in construction, which was very selfishly a great time to learn the business because going down is really hard, going up as a little bit easier. Anyway, so those interviews, all my direct reports from the operating companies, all of them had been here over 20 years, you know, and so they're looking at me like, "Why you, what can you bring?" You could only expect it was with a jaundiced eye that they would, "Who's this kid here who has no experience in Kitchell and, you know, how's this gonna work?"
Navigating through that process was really interesting. The best part of the whole thing, though, is that I knew it came down to two candidates. At the end of the day, it was me and somebody else also from Phoenix. And I had to have a dinner with me and my wife and Bill Schubert and his wife, Judy. For people coming up through the business, an important lesson is that the social side of work becomes very important. And my wife is not a traditional stay-at-home wife. She's entrepreneurial and she's got her own business and Bill and Judy, who are wonderful people, the best people of all time, this dinner was sort of the final interview, and my wife is like, "Wow, this is a lot of pressure on me," you know, because how is she going to do? And I said, "Yeah. If I don't get it, it's your fault.
Eric: Do you remember where you went to dinner?
Jim: Yes. Vincent's. It's kind of a little French restaurant here in Phoenix, and I remember the dinner very well. My wife is...if she ever listens to this, she'll be mad, but she's always late. And we actually drove two cars there because she was running around because she has her own stuff going on. I think she'd forgotten about the dinner and then she had to, like, go buy clothes. It was like this whole big deal. And we went to dinner, and it was really good because Judy, if she ever listens to this I don't think she'll be mad at me, but she kind of commands the conversation. So she's asking all sorts of questions and then she made it very easy for us. And it was great. I'm not sure how much my wife or I talked, but it was good.
And so, with that whole process, but kind of knowing what you don't know, there's so much I didn't know. You know, I really didn't know about Kitchell and super excited. The thing that confused me the most is here's this big company, well, you know, one of the biggest private companies in Arizona, you know, always in the top 10, great reputation. Sam Kitchell, who started the company was kind of a legend in Arizona, very philanthropic, very involved in the community, in the arts. Why did they need to hire somebody from the outside to take my job? That was my biggest question to myself. So, what am I missing that they need to hire somebody from the outside? And that is because we're very entrepreneurial and our operating company is somewhat siloed because they're so busy doing their own stuff that I think it was hard for Bill Schubert or others to imagine one of those people rising up above the rest because they're good at what they do. And I think that Bill thought that there was a different skill set or talent because Bill actually is not a construction guy, but he was more, like, an accounting and finance guy as well. However, I have a goal to...I would really like to see our next CEO come from inside the company. So...
Jim: Succession planning is a hugely important part of what I do. Kind of constantly looking to see who might be somebody that we can move up and bring through the system to replace me.
Matt: So, in a way, your consulting experience was almost the perfect training ground for this opportunity because you kind of need to know these different operating businesses need to like know what you don't know, learn kind of, you know, in talking to the people who are running those different business units. So, in a way, that was, like, a great training ground. What do you view as the advantage of hiring within the company now?
Jim: When I get in front of our employees, I have a great job because I just get to tell our employees about the stuff they do that is so awesome, and the sacrifices our people give and what they give to the company is incredible. But I think that that consulting stuff really allows me to trust and empower people, but know that if there's an issue I can get engaged and kind of dig in if I have to. So, a couple of things. We have a very robust business planning process. You know, we're calendar year fiscal year, but our business planning probably starts in July, and construction it's May. So, our year is almost baked anyways right now. So, we start, you know, in July and then companies and we have a robust planning process, and then I tell our operating company presidents, you know, "Your plan is your promise. This is what you're promising to the shareholders, which is our employees. To the extent that you're on plan, we're good. To the extent we're not, I have the right to call an audible or get engaged," and you know, nobody really wants that. I'll have people come into my office, and they'll have some disagreements, and I'll say, "Well, I can make a decision. Probably 80% of the time I'll be right, but do you want me to make the decision or you guys want to go figure this out yourself?" Because 20% of the time, I could make a really bad decision.
I've worked really hard. I've been here almost 11 years trying to break down...silo is not the right word, it's just kind of entrepreneurial. But when I talk to people from outside of Kitchell that know about Kitchell, they're like, "Yeah, our company wants to be like Kitchell," because we've got all these different things going on, program management and CEM at risk and, you know, the development company, and then sometimes we don't realize how many great things we have internally. And I think 5% to 15% of the time we can put together a different team if we use resources from all the operating companies, and have something that is demonstrably better on certain projects. It's not all the time, but at some times. And I really work hard to try to get our people to find those opportunities and harvest them where we can put a development guy in a deal or put somebody from our program management business inside of a construction project or vice versa. And that's where I think we can add real shareholder value.
Matt: You get that kind of benefit of, like, the cross-functional team in different perspectives, both doing something really well and other people have.
Jim: Correct. And other people can't put those teams together.
Eric: Yeah. Oh, that's great. So, how does the transition actually go? Do you remember, like...? Do you guys overlap? Do overlap with Bill or...?
Jim: So, I started in January of 2008. Bill, him, and the transition consultant, Peter Levin, put together a sort of a plan. When I started, Bill gave me, you know, half the operating companies and half of the shared services. And then kind of every six months he gave me another little piece, and then he retired in 2010, and I took over as CEO then. Bill is still our chairman. He's chairman of our board. Great guy. I call him 10:1 that he calls me. So, he's a very good sounding board. Bill doesn't have any financial interest in the company anymore because it's employee-owned. He's a great resource to me and a great mentor.
Eric: How did you guys get to the employee-owned state in Kitchell?
Jim: We have to credit Sam Kitchell, our founder, with that. When Kitchell was founded in 1950, it was called Kitchell Phillips. And there was a guy named Jim Phillips that was involved with the business, and not too many years after the company was started, he wanted to go do something else, and Sam was gonna buy him out. But Sam also at that time decided to allow people that were driving the business with him, so his senior executive team, to buy Jim's shares the same price Sam was buying them. And so, that was sort of the start. And then that was working really well, and we had a profit sharing plan for our employees. And at some point, I think in the '70s, it was kind of a typical profit sharing plan that was invested in stocks and other things. They converted it to owning Kitchell stock.
So, the profit sharing plan started a whole Kitchell stock so that all of our employees that participate in the profit sharing plan, they give no contributions itself based on company contributions in the profit sharing plan. Everybody participates that. And then we had executives that owned shares. So, it was kind of a dual ownership with everybody participating in the profit sharing plan. And then that just began to grow the ownership on the other side where as people gain traction in the company, you know, have demonstrated their commitment to our values, commitment to our company, commitment to our mission, what we're trying to do, and then they're contributing the financial success of the company, we give them opportunities to buy shares as well through an incentive stock ownership option process.
So, we have ISOs that we grant to employees. And so, actually, our ownership is pretty broad now. All of our companies, a little bit over 1,000 employees and we have about 400 that either have shares or can buy additional shares because they've got vested options. You know, a stock option is a great deal because you get to buy something at today's value at a price, in our case, six years ago, and so, you know, you get it baked and gain. The stock ownership and the profit sharing plan of a company has been an amazing thing. And, you know, Sam Kitchell pretty much in, you know, his generation, he transitioned the company to employee ownership. And, I asked Sam's son-in-law who worked here for a long time and Bill Schubert, you know, "Do you think Sam gave up anything by doing it the way he did it?" And they both said that he probably made more money because you're giving ownership. And I think people treat the business differently when they own it than if they don't. And our profit sharing plan we have, it requires a commitment, and because it takes time, you invest in it. But if people are here for a long time...and this is a challenge in today's market. But if you're here for a long time without contributing anything, you will leave with a very nice nest egg in the profit sharing plan. You've not put a penny into that. And then, in many cases, those people also own Kitchell shares, which is a great benefit as well.
Matt: Going back to 2008 when you started, so construction industry, major challenges. Do you remember...and from what I understand, the Phoenix area, you know, got hit pretty hard too, do you remember any of the conversations that happened around that time and how that changed kind of your outlook? And did you ever have an, "Oh, no, why did I take this job?" moment?
Jim: Yes, I remember. So, in 2007, Kitchell closed out a record year, each one of the operating companies had a record year individually. And so, the thing was just cruising along. 2008 comes, in early 2008, people felt things were pretty good, but then the wheels started falling off and then in September the world ended officially. And we were a bit blessed because, in the contracting business, we had a lot of good backlog. So, backlog is super important, right? And if you have good backlog in big jobs, that'll run you out for a while. So, it really took a little bit at the edge off but, you know, we went down. I mean, we were significantly down and had a lot of challenges. Our biggest risk was in our development company, though. We're not syndicators, we're not raising money and kind of doing fee development projects. We use our own equity on projects and, you know, we'll have a partner or something, but we won't have a lot of partners. You know, we had many, many, many, many millions of dollars of our equity in projects and the banks all kind of wanted to pull back, and they wanted to reduce their exposure on projects.
The good news is we're a very conservative company, and so we weren't too far out over our ski tips on many projects. There was one in particular though that in 2007, the lending environment was so loose that we sort of got, I won't say talked into because we're smarter than that, but we took opportunity to put less equity into project and much less equity than you'd be required to put into today. And then had issues with the bank and they wanted us to pay down the loan faster than we could. We were doing a grocery-anchored neighborhood center, and the grocer went bankrupt and, you know, termed the lease, and we're not really built to hold projects in our development company. We mostly, you know, buy land and title it, get all the zoning done, design it, build it, lease it up, stabilize it, sell it.
But we became landlords on a number of projects, and we had some really tough, tough situations, and we had some power centers, which became very difficult in Manteca, California. It was tough. So, I spent a lot of my time with president of our development company. He's a great guy, very talented, but working with the banks, making sure they understood where we're coming from and really trying to hold on to cash as much as we could, and, you know, it was good. So, through the downturn, we never lost money at all. And then most of everything that negatively happened in the development company turned around eventually. You know, like I always tell people, I think during the recession, Kitchell just got five years older. Everyone who could stay stayed, right? Had to let some people go, but pretty much the base of our company weren't doing a lot of hiring, kind of got five years older. And we're dealing with that now, as things have freed up over the last couple of years there's started to be some movement and people coming and going. Our tenure in our workforce now is probably...we're much younger tenured than we were 10 years ago, probably about 60% of our employees have been here less than 5 years.
Eric: Yeah. Going through that time, was there anything from that experience that changed the way you did business moving forward or did you kind of look at it and go, "Well, it was the conservative nature of Kitchell that got us through that experience?"
Jim: One of the things I learned that I really try to make sure we do is really watch our overhead because you get big and you think you can afford things and things are going well, and because of the way we're structured is an employee-owned company and we try to have a very family feel. If you have to back away from that, it's very hard. Yeah. Those decisions are hard and impacts people, and real lives and I really don't wanna ever be in that position again, so we watch it very carefully. We try to but, you know, things are really good right now, and I can see that we're making decisions and I just always try to keep a sense of that, particularly as we're betting the equity of the company, which belongs to our employees on projects. We underwrite them very conservatively. We try not to put ourselves in a position where we can potentially hurt the company. And the other thing is we're focused on return of capital, not return on capital. We're very conservative. We have cash in the business, and we hold it, and we're not doing crazy stuff with it. We try to get a decent return on it, but we're not investing in the market, and we're not, you know, doing anything nutty.
Eric: Yeah. Do you guys ever feel like you miss out on any opportunities because you are so conservative from that standpoint?
Jim: Yeah, you do. But you also miss out on opportunities to lose a lot of money. You know, one of the things we don't do, we don't build condos. There's a lot of opportunities to do that, but building a condo is, well, from my opinion, a guaranteed opportunity to get sued at some point, and have to deal with it. So, you know, other companies are very good at it. They know what to do, and they price it into their deal, and they know where they're gonna end up, but we're very cautious on that because it's a tough deal. We have year-end meetings with our individual operating companies, and then we have an all employee kind of shareholder meeting. When I stand up and talk to them, I wanna be able to tell them that there's low risk here. We're gonna make money, but I'm not gonna bet the farm. In our business, we bet the company every day when we open the gates to a job site. Anything can happen, so we've got enough risk. I learned from one of our people that we're not construction guys, we're not business guys were risk managers, all of us, every day. And so, managing that...and I believe that, and managing our risk is super important. And so, we don't need more than we already have.
Matt: Going back to starting at Kitchell, I believe shortly after you started, you experienced a fatality in the company. Is that correct?
Jim: Yeah, it was a really tragic story. So, I started in 2008. Bill Schubert retired in 2010. Twenty-three days after I became CEO, January 23rd, 2010, we had a fatality on the job site, and I was not prepared at all, 100%. I was an office guy, you know, I had people that worked at workstations and computers and desks. We had sort of the emergency handbook, what you do when this stuff happens. But nobody sat me down and said, "Jim, this might happen." And it happened. Again, I was unprepared. I was shocked. And it was a huge lesson for me because I'm never going through that again, to the extent possible. You can never really isolate a cause because there's something that could have been done always. And so, at the end of the day, the responsibility keeps going up higher into the company. What did we do? And, you know, the story is this individual was a laborer on one of our job sites. There was a water valve in the ground, and he had been tasked to go get a shop-vac and clean it out because it got debris in there, and it was sort of an inactive part of the job site where there's vehicle traffic, and he had a spotter and they went out to go do it and the spotter got called away, somebody needed him for something. The spotter said, "Don't do anything until I get back." Well, the spotter got further distracted, and the guy got bored and antsy and went to go do the job without the spotter. And a high lift came by and just ran him over.
Matt: Oh, man.
Jim: There's so many things that could have been done differently. I don't know that much about construction, but I do know that when you change things, and things move around like they do on job sites, they become more and more dangerous. And that's why we're really focused on always trying to minimize change, you know, keep things off the floor in construction sites to really try to keep things clean and keep people protected. But it was a jolt for me, and I would say to anybody that's coming into construction, it's a possibility that this could happen. You could be a supervisor, or you can be there or you can be a witness or it could be you. It's a dangerous business.
Eric: Yeah. How have you woven safety into the fabric of the company since then? What practical steps did you take to kind of look at and implement safety procedure stuff?
Jim: I had always thought were really good and, you know, there's lucky and there's good, right? And you think you're good, but you might be lucky instead. One of the things that we did do because of this is we always felt like we were safe, but in our values, in our written values, safety wasn't in there. And I just said that has to be a value and it has to be at or near the top and honesty and integrity as our first value, that has to stay there. Safety is our second value. And then we've really upped our game on...you know, we've got a great safety director that is really, really good at what he does. You know, makes sure that people understand what our manuals say and what our procedures are. We have a clear policy that anybody can stop work at any time, and it's really their obligation. We have..."See it, say it, solve it" is kind of our motto. So, if you see something, say something, and solve it. I mean, you can't necessarily solve it right away, but you got to get to a solution eventually.
You know, we just started our interns and [inaudible 00:51:55] who runs our construction company, Kitchell contractors made sure everyone knew that you have to stop something that you see as dangerous and make it personal. So, you know, he told a story about a young gal who saw somebody on the top rung of a ladder, and she was young and didn't know anything and she kind of walked by and then thought about it and said, you know, "My dad fell off a ladder when I was a kid," and she said, "You got to come down," and he snarled [SP] at her or whatever. But he eventually did, and they solved the problem. But we don't want people to be unsafe because, first of all, what happens to the family of the people that get hurt or injured or killed on a job site is tragic and just what it does for morale and everything.
So, we really try hard. You know, I learned enough that it's management's job to reduce severity and it's the field's job to reduce frequency. And so, we have to just keep leaving that message out there of, "Don't be dumb." Back in my old life, where I can tie this to is because I did technology and transactional processing where we were terrible and so we got off process. When you're doing something and you have to correct or do rework, we are always bad at that. We were really good if the train was going down the tracks, but if we got distracted and had to do something different, same thing in construction. You're not doing something that you planned or if you get bored or complacent and, you know, usually, it's more experienced people that get complacent that get injured.
Eric: All right. So, let's go back to when you started at Kitchell. Do you have any, like, tough lesson stories that you have when you first started at Kitchell after that fatality?
Jim: Well, the really tough part for me was coming in and making sure people understood that I was here for the right reasons. Came in from the outside, didn't know anything about construction, my direct reports have all been here 20 years or so. So, kind of really building that rapport. Back when I was at Arthur Andersen, I loved it there. I'd made partner before they sold the business off and I love that partnership feel, and I really try to operate inside of Kitchell like a partnership with my company presidents and making sure they understand that I wanna build consensus. And one of the lessons I learned is that you can't go into somebody's business and start meddling below the leader without their buy-in. I can't go and say, "Fire that guy" without their buy-in because then they'll just blame you. Well, I needed that guy. You made me fire him, and it's not working. So, I'm very big on consensus.
I think that when I was new inside the company, I pushed too hard on some things of trying to bring the companies together. They weren't ready to do it. We had a whole initiative called "One Kitchell," which sounded great or whatever. But, again, we're entrepreneurial, and we've grown the business through people that are champions because we got into the development business. We've bought another general contracting business. We've got all sorts of businesses inside of our businesses. We've got a facilities management business, we've got a property management business, we have a moving logistics, planning business, and health care. We have an environmental business, we have lead services, we have engineering and architecture services. All these things had been started by people that are passionate, and we back them and support them.
And so, I was trying to push us together. You know, we all like each other, we all respect each other, we all hold each other accountable, but we don't all have to be exactly the same, and we don't all have to work together all the time because they're doing a really good job doing what they're doing. I pushed really hard on that in the beginning, and it was a lesson, you know, just to make sure move a little bit slower. We don't work on a 90-day cycle, and I love that. In fact, another life lesson I've learned is that you can learn as much positive from negative things as you can from just reinforcing positive things. So, like, I learned so many good lessons from working in a public company. I cherish what we have here at Kitchell where we can really think about the long-term. You know, if we've got a business that is suffering, we can make the decision yet. It's so hard to rebuild that capability, and once you give that up, it's so hard to get it back. Let's hang onto it longer, and we'll let the cycle play out, and we'll be back. Once you lose a talent or a capability, I found it's really hard to get back into it.
So, we have that luxury. It's interesting one of the things that when Bill was searching for his replacement is a kind of a requirement was no public company experience. And I was able to turn that into, "I know why you say that. I will not run this place like a public company. I'll run it like a place where we are thinking about the long term." And when our leadership gets together, always our number one thing is that Kitchell wants to stay a private employee-owned company in perpetuity. So, we don't want outside investors. We don't want to go public. We don't want to sell a business. We like what we have, love our diversity, and cherish it.
Eric: You also had a story about an acquisition of a firm. Can you walk us through that part of your experience?
Jim: Yeah. We made a couple of acquisitions at Kitchell since I've been here.
Matt: What are your general thoughts on acquisitions?
Jim: It's pretty simple, and I have three criteria if my people have an idea of something they want to do. One is we have to have a complete cultural match with our values. Cultural values have to match up 100%. Two is I am only interested in companies that have a good management team in place that wants to stay. So I don't wanna buy a company and clear out management and redo it. And the third one is I don't do turnarounds. So, we don't do bargain basement and do fixer-uppers. It's just not worth. It's too much brain damage. So, those are my three criteria. Pretty simple, right? But if we can get over those, I'll think about it.
Eric: So, I kind of feel like your experience in turnarounds though would almost lead you to be an expert in that. But...
Jim: But I know the risk.
Matt: You know, the pitfalls.
Jim: Well, and the amount of care and nurturing they take to get them back where they need to be.
Matt: Why might they be more work than it would seem on the outset?
Jim: Well, because they're suffering. They need cash infusion. Their technology is bad. Their business plan is bad. Their strategy...you know, there's something wrong with the business. To bring an acquisition to integrate it inside of a company like Kitchell, it just takes so much that you don't need to put another anchor around your neck of, oh, we've got to fix it too, right? So, that's why it's important also to bring management along. Now, I made two acquisitions, and we've looked at some others at Kitchell, one or two that I wanted to do that we just couldn't get it done. And some others that, you know, just didn't make sense for us. But we made an acquisition in our facilities maintenance business a couple of years ago, which sits under our program management business, which is called Kitchell CEM, Capital Expenditure Managers, and we made that acquisition. The tough lesson that I learned there is we had a champion inside the company, which is kind of a requirement. We had an executive sponsor, which is a requirement. We had a good business plan.
My champion flamed out shortly after the acquisition, and went and did something else, and we just didn't pay enough attention. We felt like we had the guy that we acquired doing enough, but he wasn't well enough integrated in the business at all. You know, this is in San Jose, and my leadership team was in Sacramento, a few hours away, hard to get to, and we sort of left him on an island. We've got a big clean up thing now. It became kind of a mess and, you know, the lesson is you got to have somebody from the inside there. And so, when this guy flamed out, we didn't replace them the right way with the right person because you gotta be able to protect your culture, let people know who Kitchell is. And so, they became kind of an island, and it was a really hard lesson, but really I knew the answers and we kind of trusted that it would happen, but you need to do more.
Eric: What would you have done better to not have them on an island?
Jim: When this guy flamed out, which I couldn't control, when he flamed out, we should have had somebody else made them move down there because that business was just too new inside of our world. I think it was less than two years and we thought we can manage it from Sacramento, and we couldn't. It was tough. So, my board is not real happy about all that but, you know, we'll learn, and acquisitions are hard. So, the other one we did is we bought another general contracting business here in Phoenix, which is weird, but it's called "Hardison/Downey" and they just kind of had a different niche than Kitchell Contractors, so we've kept their name and what they do. So, they were more hospitality, high NTIs, industrial shell kind of stuff. Still decent value but just different because Kitchell Contractors was healthcare and shopping malls and big construction. That one actually worked out well. And you guys know from construction when you get individual owners...we had two partners that had been in the business for 26 years or so. They didn't have any family in the business. They didn't have an ownership team that was ready to take over or that they wanted to finance.
And so, what happens to those companies? They either just wind down their backlog or whatever. Our development company had used them to do projects before, we JV'ed a couple of projects at ASU. So, our values matched two owners, like I always tell them they were close but not all used up. They had some utility left in them, and they needed an exit strategy. So, we put together a deal, and that has gone pretty well. And one of the partners retired a few years ago, and the other one has stepped down from president to senior vice president role, and we hired a new outside guy to take that over. So, that was a big succession thing for us, and that's gone well. It hasn't been easy, but it's gone well because we had to manage the confusion in the marketplace because we have two different general contracting companies, but they really do different things and have different sets of clients. And so, it's been good.
Matt: When you do an acquisition like that, that's so close to your other business, how do you not let one just absorb the other and kill off its identity or how do you maintain, like, the pride that they have and their identity and marry it up with the pride that you have in your existing business' identity?
Jim: It has been a significant challenge, especially in the beginning where my board of directors, as we went through this thing, you know, they gave me one clear mission, they said, "Don't Kitchellize these guys." We're buying them because they're different, right? Kitchell is big and does big contractor kinds of things, and Hardison/Downey did different kinds of things. They can move a little bit quicker. They didn't kick up as much dust as they moved...you know, that. And so, don't Kitchellize them. Then how do you balance that? You know, we kept their brand, they actually are in a separate location. We're working on actually moving into our campus now, but they're in a separate location, and they've been there. And I've gotten generally good feedback from inside the construction community in Arizona that it was a pretty good idea. But you're always fighting that because sometimes now we find that there's opportunities that they both wanna go after. And so, you have to decide. I just say what's in the best interest of Kitchell if you both wanna go after, put together a great team from both companies, and let's do it that way. And I don't care who owns it. They do, but that's my battle. I always say, "When is the last time anybody got fired at Kitchell for doing the right thing?" which has never happened.
So, we work on that and try to put together a great team, and we share resources. We've got, you know, people that have moved from Kitchell to Hardison/Downey and vice versa. We are continuously looking at opportunities on how to be better, but I always go on that brand that has its own value. And in the market, they do different things. They have different relationships, and they've got some really deep relationships in certain areas, and so does Kitchell Contractors. And I've got two really good leaders in those companies, and they get it. They communicate really well, but sometimes down a few layers you'll get some people that have hard feelings about stuff, and you just need to keep telling them we're always doing what's in the best interest of the shareholders. That's our mission.
Eric: What excites you about the future of the construction industry?
Jim: In construction, I think we are in for an incredible amount of change. It's gonna be exciting, but the world will change, and the way we do things is going to change. And, you know, if you go from the last cycle before the end of the world, at least in Arizona, subcontractor market got really big with the market. There's enough labor to do everything, and then they got killed. And I think on this cycle, which I think has been underwritten every level much better, we find our subcontractors either by design or by circumstance have stayed smaller. The ones that are doing by design are just managing a lot of...they got all the work they need, and they're making a ton of money. And so, the volume of work is out there, but there's just no labor, and we're retiring the skilled trade much faster than we're replacing them. The push for developing workforce is super important, and I'm engaged in that and some other stuff. So, we're looking at that.
So, what we're doing is we started a company called Kapture, with a K, you know, kind of matching the Kitchell thing. We're getting very serious about offsite construction, so we can get productivity gains. I think last year we did, like, three or four miles of interior wall panels. We're doing exterior panels for the commercial market. We've done bathroom pods, headwalls for hospitals, racking systems. Few things can happen. We can completely upset the construction schedule because we can do processes in a different order because we don't have to have the building built to put the exterior panel on. You know, we can do those in advance. We can, you know, start building the bathrooms before the floor decks report. All that stuff, so we changed that. You're working in a safer environment because we have people working not on six stories or scaffolding or tied off on the edge of a building. We have them inside, and we've got them on steps so that they're working at height, bending or reaching or whatever.
And we've got a safer environment. We've got a more comfortable environment. If you've been to Arizona in July or August, it's a pretty miserable place, especially if you're mucking concrete, but we're not doing that from offsite, but still, it's hot so we can control the environment inside a warehouse. It's not gonna be 72, but it can be 85 inside there. Cost will come. Cost is the one that I think we haven't quite got there yet. We're still figuring it out. We're probably better than this, but I tell people you got about 5% figured out. But the cost will come, and what we're able to do is we're able to disaggregate processes. So, where you might have an electrician walking around a room doing 16 different things, we can get educated workers that are doing, not repetitive, but just doing processes that make sense. And we can stage work so we can...you know, we've got these giant sliding racking systems where if we're doing internal walls where they just moved down the line. If you've got a process that takes twice as long, you've got twice as many workers there and it just kind of moves.
But I think the real play here is gonna be in the technology side. You know, my vision is really to change the way construction is procured so that we are essentially working with designers, so we don't wanna own the entire chain. We want people to build what they wanna build, but we wanna try to be able to componentize as much of a building as we can and build it offsite, offsite construction. What's gonna be really important, what we wanna do is when a designer draws a line, architect is drawing a line, we're really putting together materials list, which can really eventually be put into a PO that can come to our facility, and we just do it. So, working on automation where we can. I always like to tell our people, when we talk about process and automation and so forth, I say, "It's freedom through standardization." So, if we can get good standard process, you're free to really think about real problems or think about something creative or think about something else. What we're doing is valuable, but we can increase your value by kind of doing that. And to get us where we need to because of the labor issue is we have to disaggregate these processes so that we can get people into the workforce and get them trained and bring them along quicker.
Matt: Yeah. It's great. It's exciting stuff. This is the type of thing we hear from a lot of people, and everyone has their own kind of little angle on it. Yeah, it'll be exciting to see how people most successfully kind of leverage offsite construction. Yeah, it's interesting stuff. We are a couple of like more fun kind of low-key questions that we'd like to run through here, and you can just keep the answers quick and light if you want, but what time do you wake up in the morning?
Jim: Between 5:30 and 6:00.
Eric: First website you check every day?
Jim: First, I look at the news on my iPhone, the little Apple news button that gives you a bunch of different stories. But then I always go to the "Wall Street Journal."
Matt: How about random websites? Is there a random website that you check every single day that people don't know?
Eric: Okay. What's your favorite restaurant?
Jim: In Phoenix?
Jim: There's a place that I can actually walk to from my house. My wife and I go there a lot. It's called "Greene House," and it's just good vibe and not crazy expensive, but we sit at the bar and have a glass of wine and appetizers or dinner.
Matt: I've been there.
Matt: Yeah. We went to the half-price wine night on a Thursday, I think.
Jim: No, Wednesday.
Matt: Wednesdays, that's what it was.
Matt: It was that night. My wife and I were in the area for spring vacation. Okay. So, then do you have a favorite quote?
Jim: I think where I go on this one because there's so many great quotes, but I really like "The harder I work, the luckier I get." And I've seen that attributed to a lot of different people, but I think it might have been an Edison thing, but I just think my life has been...I've been blessed far beyond any kind of expectation I had when I was a clueless kid coming out of college. You know, I think there's a lot of truth, you know, good things happen to people that work really hard.
Eric: How about your favorite book that you've read recently?
Jim: Probably my favorite book, and I don't want to go political on you, would be "Atlas Shrugged." It's just a great read and, you know, it's timeless or timely, whichever the right word for that is, that'd be my favorite. Currently, I've been reading...Ken Follett wrote these books that had kind of a little architecture spin, but because he writes kind of some of those other novels, but in the '70s, he got really deep into like the Middle Ages, and he wrote a book called "Pillars of the Earth," and there's a book called "World Without End." It's about this little village in England, about this guy who wanted to build a cathedral and kind of his life and...very interesting story. It's long, but that's what I'm reading the second book right now.
Eric: So, you kind of like historical fiction type?
Jim: Yeah. I love history. If I wasn't doing this and...because I was eventually gonna get burned out doing my job and Affiliated Computer Services because it was hard. I always told my wife I'd like to be a history teacher. So, that would be maybe someday after I retire from here I might do something like that. But I love history. I love American history in particular.
Matt: You're passionate about teachers in general. What was the beginning of that or what led you to think that you would like to be a champion of teachers?
Jim: I tell people in Arizona that the single most important economic development tool we have in our state is our education system. I got involved I guess in education a little bit after I start with Kitchell. I went to a charity dinner for Teach For America, which is an organization that puts kids that are coming out of college that aren't necessarily on a teaching track, convinces them to go teach in predominantly underserved districts and they commit to two years to doing this. And so, it's sort of like Peace Corps for teachers, and you get these really enthusiastic kids that wanna come in and change the world and then they're impacting...So, these are kids impacting the lives of kids and to see the stories and what they do to motivate children and the power of changing a single life, to me, is incredibly important. You know, my kids had been blessed, they all did well, you know, stable household. But some of these kids in some of these schools, these young kids come in as teachers, and they're not teachers.
First, they're food banks, or they're counselors, social workers, they're homeless shelters, they're dealing with all sorts of problems that these kids have that are no fault of their own. I mean, they were just born into an environment, and we have to support...every kid should have an equal shot at a great education. I'm super passionate about that. So, I work a lot. I'm chairing Teach For America here in Arizona now. I'm on the Arizona State Charter School Board and working really hard to figure out where...the State of Arizona really suffered during the recession and we haven't really gotten back. And so, our schools need additional funding, and so I'm working with anybody who will talk to me about ways to make that happen. So, pretty I'm very involved in it and super passionate about. I'm lucky my board and my management team gives me some time to work on these kinds of things for the community.
Eric: Yeah. That's great.
Jim: That wasn't a short answer, by the way.
Eric: No. That's good, though. That's really good. I saw on your guys'...the company Instagram page, you do, like, a golf outing thing. So, I have a golf-related question. What's the best public golf course in the Phoenix area that you prefer to play?
Jim: I really like Talking Stick. It's on the Indian reservation, and they've got two courses. They're both great. It's kind of my...If I'm gonna play a resort course or something that, you know, I've got people in town that's kind of one of my go-tos. I mean, the other stuff up in, you know, True North and Grey Hawk are great, but I just really like those courses. They're close by, and they're well taken care of, and it's a good environment. Kitchell as a company and the construction industry are very interesting. I've learned so much, and there's so many people in this business that are in our company that are so committed, and they sacrifice so much. You know, these guys they travel, and go to job sites, and go to remote locations, and live in man camps. And it's different than a lot of different places I've seen because people are so committed to what they do. I love it, and it's an honor to work in this industry.