and Sam Hagerman began to sense trouble in spring 2008. The partners, who own the Portland, Ore.–based building and remodeling company Hammer & Hand, had weathered market swings before. But this time, their experience told them that housing was headed over a cliff. “We knew it was too easy to get money when some of our clients were getting these loans,” says Hagerman (above, right). A lot of builders made similar observations at the time, but Hagerman and Thomas developed an unusually comprehensive response, one that allowed their company to survive the recession, but also to double in size from 2009 to 2012.

Reflecting on the source of their company’s success, Hagerman and Thomas decided to stand by their most deeply held principles. “Early on, we developed the core philosophy of our company, which is that employee happiness and well-being come first,” Hagerman says. Layoffs would betray that code, so the partners took measures to protect jobs by bolstering their core business. “What we chose to do is create some related businesses to surround it,” Hagerman says. Leveraging the company’s woodworking expertise, the partners launched a line of “upcycled” bookshelves and tables fashioned from scrap and salvaged wood and metal. That led to the next step: a retail storefront in Portland’s Pearl District, a thriving downtown neighborhood of upscale condos. “The first ones were approaching 15 years old,” Hagerman says, which created a market for the company’s design/build remodeling services as well as furniture.

Perhaps the most important of the new initiatives reflects the partners’ conviction that energy efficiency will define the next era of residential construction. First, the company launched an energy services division. “We got BPI [Building Performance Institute] accredited and got in line with the local energy retrofit program, Clean Energy Works Oregon,” Hagerman says. After researching both LEED and Passive House programs, the partners cast their lot with Passive House. “Energy is artificially cheap right now,” Hagerman says. A Passive House project still can match an equivalent code-built house in cost, he notes, “but you’re spending the money on the house only, not on the mortgage plus energy.”

“Passive House new homes are about 25 percent of our work now,” Hagerman says, “but [the program] informs all of our work.” Insulating rim joists, upgrading attic insulation, and whole-house air sealing have become routine even in kitchen and bath makeovers. With interest in green building growing through the recession, “we’re building more new houses than we ever have,” Hagerman notes. “And that was true two quarters ago, before the market started to turn.” Leveraging its expertise in “low-load” buildings, the company recently opened a satellite office in Seattle.

Four years ago, when Hagerman and Thomas were plotting survival strategies, they expected to hit at least a few foul balls. “But everything succeeded,” Hagerman says. The resulting rapid growth has presented challenges, but they are the kind that get builders out of bed in the morning rather than keep them awake all night. They are a proof of concept for the proposition that a company best serves its own interests when it also serves those of its employees. “We never expected to grow the business,” Hagerman says, “but we didn’t want to shrink it. This was all about job creation around the core.”

Hammer & Hand

Type of business: Custom building and remodeling

Years in business: 17

Employees: 80

2011 starts: 50