When it comes to your physical health, modern medicine has a variety of monitoring tools. Some, like scales, are simple; others, like MRI machines, are more sophisticated. None, however, are foolproof. Occasionally, a test yields a "false positive" -- a result that indicates the opposite of the actual condition.
When it comes to monitoring the fitness of a remodeling business, our tools are even less reliable. We lean heavily on our personal experiences (mostly scars and bruises) and on stories from other remodelers. But there are few government or industry standards to help us distinguish good information from bad. That's why it's important to actively question what you hear and read to avoid perpetuating a false sense of business fitness.
Here are five "false positives" about the remodeling business -- statements that sound good but may indicate hidden problems.
I'm booked out for six months. This isn't necessarily a good thing. It may help you sleep at night, but sales and marketing processes start to break down when they are not used consistently. I recently talked with a top remodeler who said he had to learn to sell again after experiencing this type of backlog. Remember those rainy day business conditions.
Almost all my business comes from personal referrals. It's certainly good to receive personal referrals, but using them exclusively can cause you to ignore other marketing efforts. When the economy experiences a downturn, as it has recently, a strong marketing strategy is critical to survival. If your business is down today, look back at what you were doing on the marketing front when business was good. More than likely, you were relying on referrals -- taking orders, not marketing or selling your business.
I just sold a big job! Bigger projects don't mean bigger payouts. They require different processes, staffing, and management skills. If you're wondering why you didn't make as much money as you had hoped, take a look at your project blend. Most companies are set up to do certain-sized projects and end up in real pain when they substantially increase project size.
I have a great client base. Do you really, or do you have a referral base? If you go to a restaurant once every five years, are you a patron? I don't think so. Similarly, I would argue that if you're doing a project for a past client only every five years, they are more a part of your referral base. If you can't find more ways to do business with them, it might be better to focus your efforts on the best projects for your organization rather than on creating a client for life.
My business has grown 30% since last year. This kind of growth is like losing 20 pounds in two weeks on a crash diet -- it is too much too fast. A remodeling company needs to grow for many reasons, some of which, like creating opportunities for your team or adjusting to client needs, are not purely financial.
You should be able to grow up to 5% just by paying attention to your business. But you should have a written plan to accomplish 10% growth in a sustainable, profitable way that does not overwhelm your team.
To grow between 10% and 20% takes a real investment of time and money. Beyond that, growth becomes a full-time job involving new team members, a big investment in training, and maybe some diversification. Also be prepared for some slippage in short-term profitability.
When a mature business grows more than 30% in one year, it could be a disaster waiting to happen. Several of the remodeling companies I have seen grow at this rate no longer exist. Consistent and gradual growth allows you to make adjustments to the economic environment and create good long-term habits. --Mark Richardson is president of Case Design/Remodeling, Bethesda, Md., and the author of 30 Day Remodeling Fitness Program. He can be reached at (301) 229-4600 or firstname.lastname@example.org.