A bet on technology pays off for family business

Thomas Heath
Reporter September 8, 2013

Fifteen years ago, Jerry and Sheldon Shapiro had a nice life running a small, unglamorous, third-generation family business that installed plumbing, heating and air conditioning in Washington area commercial buildings.

The brothers itched to get in the big leagues, however. So in 2007, they made an $8 million bet — and took a great leap forward.

Thomas Heath is a local business reporter and columnist, writing about entrepreneurs and various companies big and small in the Washington Metropolitan area. Previously, he wrote about the business of sports for The Post’s sports section for most of a decade. View Archive

The Shapiros, who own Rockville-based Shapiro & Duncan (there is no Duncan, but more on that later), bought a former Giant food warehouse in suburban Washington that year and turned it into a state-of-the-art prefabricating pipe plant.

The prefabrication plant may sound boring, but it is a vivid example of how companies such as Shapiro & Duncan make big financial bets on technology.

When it works, such capital investment propels companies to greater profitability.

It has worked for Shapiro & Duncan, which installs pipes that cool and heat buildings, carry electricity and provide running water and sewage removal.

The plant, which the brothers borrowed money to pay for, enabled Shapiro & Duncan to install pipes in office buildings far more efficiently.

That single calculation changed their whole business, allowing them to work with big players such as Clark Construction, which builds, well, just about everything in Washington.

The company, known technically as a mechanical contractor, employs 350 full-timers and expects to gross nearly $100 million this year, which is 25 times the amount a decade ago. It’s working for Clark on its biggest job ever: a $57 million project at Inova Fairfax Hospital.

Jerry Shapiro, 53, said his company earns single-digit profit margins.

I am a sucker for factory tours, so I jumped on the Metro and headed to Landover for a look at the sprawling prefabrication plant.

Shapiro & Duncan’s pipe plant runs 16 hours a day, employing 30 workers and welders during the day and eight at night. The goal is to eventually have enough work to keep the plant running round the clock.

The plant allows the firm to use fewer workers on its jobs, lowering the cost for installing pipes and making Shapiro & Duncan’s bids more competitive. It also allows welders the comfort and safety of doing more of their work in the factory instead of climbing a ladder at a construction site to weld a pipe while looking upside down. The plant doubles the efficiency on weld inches.

“It’s easier to do the welding here than have a welder crammed in a space, looking upward, trying to hang and weld pipes,” said Mark Drury, vice president for business development.

Thirty or so feet above the concrete floor, three cranes attached to the ceiling grab giant pieces of steel pipe and transport them to another part of the building. A $300,000 machine, shipped from Oceanside, Calif., uses plasma to cut steel pipes in a quarter of the time it takes to cut on the job site. The machines are programmed by computer to cut the pipes to exact specifications, reducing waste.

Twenty-foot sections of copper pipes are bundled together in cellophane, waiting to be put on a flatbed truck. The pipes being fabricated now will eventually carry water in a Howard University dormitory.

Steel pipes that are 24 inches wide, shipped from North Carolina, have been cut and labeled (blue for cold water, red for hot) for Shapiro & Duncan’s job at Inova.

In rooms off the factory floor, a dozen computer experts create 3-D animations that help Shapiro’s employees coordinate their pipe installation with other construction subcontractors on the job.

“There are other guys that are doing this, but very few,” Jerry said. “This is our real differential.”

The employees at Shapiro & Duncan are not unionized. The company employs what is known as a “merit shop.” Welding requires highly skilled workers, who can earn from $16 to $55 an hour, based on their productivity.

The company is big on productivity.

Prior to the financial crisis of five years ago, Shapiro & Duncan was awash in work. Profit margins were in the mid-teens.

“There was no pressure to perform,” Jerry said. “There was no accountability. We worked Saturdays. Whatever resources we needed, we used. That kind of ruined us.”

When the economy collapsed in 2009, Shapiro’s revenue dropped dramatically. The company took any work it could get, regardless of margin, just to keep revenue coming in.

It lost money for the first time in 2010. The company laid off 100 people.

“We were not disciplined,” Jerry said. “We wanted to keep everybody busy and tried to keep people working. We took jobs too cheaply. We went for revenue instead of profit.”

Since then, the company has become more disciplined. And the Shapiros have become fanatical about productivity, with the prefabrication plant the prime example of that ethic.

The company has put such a premium on productivity that Jerry’s 23-year-old daughter, Aubrey, has made it her mission. Every field person, from helper to laborer to foreman, is given weekly expectations.

“They have to know how much they are expected to finish that week, how many welds they have to complete, how many linear feet of copper pipe they have to get in,” Jerry said.

Just informing employees that they were being measured saved 13 percent on labor costs almost immediately, Jerry said. Every piece of job data is recorded and calculated to help find ways to save time and money.

For those who make the grade, the company pays for about half of their health care. The company also matches a portion of employee 401(k) contributions.

Shapiro & Duncan dates back to Jerry’s grandfather, Jake, who began a plumbing and heating company on Georgia Avenue in Northwest D.C. after World War II. Jake’s son, David, (who is Jerry and Sheldon’s dad) opened his own company in 1976, and added the word “Duncan” just to differentiate it from his father’s business.

Jerry joined Shapiro & Duncan in 1983 after he earned an engineering degree from the University of Maryland at College Park. That year, the company did less than $1 million in work.

Sheldon, 48, joined the company in 1989. The two split their responsibilities, with Jerry running estimating, bidding and engineering. Sheldon oversees the projects.

The company’s first big breakthrough came about a decade ago when Clark Construction hired Shapiro & Duncan to do $15 million in work for heating, air conditioning and plumbing in Georgetown University dormitories. It was double the size of anything Shapiro had done previously.

It put them on the map and, more importantly, gave them credibility with Clark.

“They took a big risk, and we performed and got it done,” Jerry said. Since then, the work has poured in.

In fact, the boring-but-profitable Shapiro & Duncan enterprise is drawing the attention of a fourth generation of Shapiros.

And the family does pay homage to the invisible Duncan in its title: the family chocolate labrador retrievers, past and present, were named Duncan and Duncan Jr.

For previous columns, go to washingtonpost.com/business.

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