Turf Terminators burst on the local scene nearly two years ago with a simple strategy: promising property owners they’d handle all the hard work of removing water-guzzling lawns and leaving them with permanently lowered water bills. Customers paid nothing, but the Santa Monica company would apply for – and pocket – rapidly burgeoning turf-removal rebates from local governments.
For 18 months, the strategy worked beautifully, as the company at times raked in well over $1 million a month in rebates.
Then, Turf Terminators imploded, the victim of a business model that appears to have been too reliant on generous rebates. Once big rebates evaporated, so did Turf Terminators’ business – evidence that, without hefty public subsidies, there was little demand for its water-saving services.
On July 8, giant regional water wholesaler Metropolitan Water District of Southern California announced it was ending its lawn-removal rebate program as overwhelming public demand swamped the $350 million it had set aside for the rebates. The district’s rebate of $2 a square foot of lawn removed was by far the largest among local water agencies and formed the base of the regional lawn removal rebate program.
“With Met’s announcement that no new applications would be accepted to its program, nearly 90 percent of employer’s sales pipeline instantly and unexpectedly evaporated,” Turf Terminators said in a letter to the state Employment Development Department that’s required for mass layoffs.
Most of the other 200 employees eventually returned to work – at least temporarily – as smaller rebate programs in Los Angeles and several other communities have remained active.
But over the longer term, the company said in its letter that it is “actively seeking capital and restructuring its business model so that it may continue operations.”
Turf Terminators is run by Chief Executive Ryan Nivakoff, and appears to be owned by one of the firms he’s been affiliated with: Palo Alto investment firm Carbon Venture Partners, which owns the Turf Terminators trademark, or New York private equity Parvus Rex Capital. Several current or former Turf Terminators employees also list positions at Parvus.
Turf Terminator executives, including Nivakoff, did not return repeated calls and emails seeking more details on the company’s plans.
It’s been a swift fall for the company, which was the only firm to actively market its lawn-removal services to drought-conscious Southern California residents and businesses. Customers paid nothing for Turf Terminators’ services, and the company covered all its costs with lawn-removal rebates. With that pitch, it quickly dominated the market, taking in more than 90 percent of all rebate applications done through contractors, and even got an attaboy from Los Angeles Mayor Eric Garcetti, who singled them out in his State of the City speech in April as a creator of green jobs.
“Turf Terminators made it easy for customers by knocking on doors and saying, ‘Here we are! We will do all the work of taking out your lawn and all the paperwork for the rebates and you get water bill savings’” said Bill McDonnell, Metropolitan’s manager of water-use efficiency. “They created a model for this.”
Turf Terminators’ business model wasn’t too different from that used by many companies that install rooftop solar panels and promise homeowners savings on power bills. Like Turf Terminators, those companies use rebates to defray the cost of installing systems.
But the solar model differs in one vital way: Panel installers typically lease systems to homeowners, providing a long-term revenue stream even if rebates change or disappear. For Turf Terminators, every project was a one-shot deal: The company took the rebate money upfront but had no other revenue source, leaving it vulnerable when rebates dried up.
Rebates reached a maximum of $3.75 for each square foot of lawn removed when combining both the Metropolitan and Los Angeles Department of Water & Power rebates. With its extensive use of gravel and generally inexpensive materials, Turf Terminators presumably made a tidy profit on each square foot of turf removed.
Those practices also led to complaints from customers who said the company left them with unsightly yards – though with a business model where the customer doesn’t pay a cent and isn’t likely to be a repeat customer anyway, it’s not clear complaints had a meaningful impact on the company.
According to Metropolitan figures, the two contractors that worked on Turf Terminators’ behalf – Pan American Landscaping Inc. and Miller Paving Co. – filed 3,770 applications for rebates under the water agency’s Direct Paid Contractor program between January 2014 and the middle of last month. That’s 96 percent of all the rebates paid directly to contractors over the period (though only about 9 percent of all the rebate applications).
Pan American and Miller took in $10.9 million in rebate dollars for removing nearly 5.5 million square feet of lawn, about 63 percent of the total claimed by contractors. Pan American took in an additional $5.3 million in rebates from the DWP during the 18-month period ended in June, meaning Turf Terminators brought in more than $16 million in rebates from the DWP and Metropolitan alone, and likely more if rebates from other water agencies were included.
The DWP program is still active, but at a maximum rebate level of $1.75 a square foot – down from the $3.75 a square foot before Metropolitan’s program ran out of cash – Turf Terminators’ business has slowed to a trickle.
Between February and early June, Turf Terminators was booking an average of $830,000 of rebates a week, according to DWP spokesman Albert Rodriguez. Since the big rebates ran out, that’s fallen to just $32,000 a week – down a whopping 96 percent.
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