Specializing in a product or service can give your company a competitive advantage. Here are five success stories about remodelers who found and developed a niche. By Jim Cory
Nine years ago, Shawn Kumar's remodeling company, We Build in San Dimas, Calif., did "anything and everything." Then Kumar bought a home that had been repossessed by the bank. That year he sent the real estate agent who brokered the deal a Christmas card that included his business card. The agent called wanting to know if Kumar's company was available to work on repossessed houses. "After that," says Kumar, "we got totally focused on bank repos." A niche was born.
The word niche comes from a French word for "nest." In remodeling, it means defining and pursuing a specific type of product or service. The goal is to dominate a particular market segment, either by besting the competition or by selecting a niche where there is no competition. Niche markets in remodeling vary from exotic or unusual projects, such as installing wine cellars, to relatively run-of-the mill jobs, like additions, porches, basements, kitchens, or whole-house remodels. Successful niche companies excel in part because they do one type of work almost exclusively.
Want to pursue a niche market strategy? Here are three simple steps suggested by marketing experts:
1. Identify and estimate the size of your target market to make sure that there are enough buyers to sustain your company's sales, profitability, and spending.
2. Evaluate potential competitors.
3. Consider what investment in material, personnel, systems, or services, including marketing services, you'll need to adequately serve the market.
Marketing made easy
Another remodeler who once did anything and everything is Todd Perry, owner of Leading Edge Homes in Wellington, Fla.
Perry started his remodeling company in the early '90s part-time while working as a computer programmer. Like many just entering the business, Perry believed that he couldn't afford to turn jobs down, so he took almost anything. "In most cases, those jobs were not real cost effective," Perry says. "Some were profitable; some weren't."
Perry acquired his construction skills working with a new home builder. Even though he couldn't compete with the national home builders who dominate new residential construction in Palm Beach County, building from scratch was what he preferred.
In 1995, Perry landed his first addition job, which, he discovered, was "almost like new construction." In that year, he did $150,000 worth of work; his 2001 volume -- $425,000 -- was nearly triple that.
Today, 95% of Perry's jobs are additions. Not only does that make life simpler, it's also made marketing his company easy. Perry's Yellow Pages ad, truck signage, and site signs are designed to position him as the area's expert on additions. He receives few if any phone calls asking him about kitchens or baths. His projects are usually master suites, family rooms, and in-law apartments, and he builds them with a team of subs that has worked for him steadily over the years. He can juggle as many as four additions at one time, and he takes home three times as much money as he did before he decided to specialize. Specializing, he points out, makes it much easier to sell the project.
"When I open my presentation book, I can show clients addition after addition," he says. "Even when I'm the most expensive remodeler they'll talk to, they feel the most comfortable with me. The information I can give differentiates my company on many levels."
A matter of commitment
Sometimes finding a niche is a matter of recognizing an opportunity and being willing to commit the resources to take advantage of it. Craig Smyth, owner of Clemleddy Construction in Hawley, Pa., refuses to consider himself any kind of genius for the niche business he's built converting vacation residences to primary homes in the lakes area of Pennsylvania's Pocono mountains. "It wasn't like a light bulb went off in my head," he explains. "It just sort of happened."
Smyth arrived in the Poconos in 1986 and set himself up as a framing contractor, subbing for developers building cabins. After the home building surge faded, he recognized a whole-house remodeling market in the making as older baby boomers and those approaching retirement began buying up the A-frames, saltboxes, and mini-chalets with the intention of converting them to year-round residences. Who would know how to do that better than the person who built them?
Smyth's company now specializes in taking those 1,200- and 1,500-square-foot homes -- electric heat, no garage, galley kitchens, and inadequate insulation -- and adding space and upgrading mechanicals. He converts the electric heat to forced hot air and changes out the 100-amp electrical service and installs 200-amp. He puts in new siding, new windows, and new kitchens.
Word of mouth and the company's Web site ( www.clemleddyconstruction.com) spur leads. Demand has increased to the point where Smyth can pick and choose projects: In 2000, his company did 64. Last year more than half of the 22 projects he did were whole-house conversions averaging between $180,000 and $200,000.
Since specializing in vacation-to-primary conversions, Smyth's company is more profitable. "It's been quite a challenge keeping up with the growth," he says. But the reason he's the first choice for many consumers who want a whole-house conversion is that his company, one of the largest in the area, is big enough to do the entire job.
Pipeline to profit
Back in 1991, Don Sever, owner of Sever Construction in Oakton, Va., was remodeling a bathroom when the homeowner asked if Sever could repair a number of leaks in the polybutylene piping. "He had three leaks," Sever recalls. "Those were his fifth, sixth, and seventh leaks" in a home bought new four years earlier. How much, the client asked, would it cost to replace all the piping?
As it turned out, Sever's customer wasn't the only one in the neighborhood with a pipe problem. A class action lawsuit had been filed against three chemical companies that had developed the polybutylene plastic. The lawsuit resulted in the creation of the Consumer Plumbing Recovery Center, which distributed the $950 million the chemical companies agreed to pay to replace the polybutylene pipe. Sever's customer was one of the first to file a claim, and he recommended Sever to neighbors who needed similar re-plumbing jobs.
That turned on the tap, so to speak.
In the first year, Sever Construction re-plumbed 25 houses, using a plumbing subcontractor. The jobs involved cutting 30 or 40 holes in the walls, extracting the polybutylene pipe, re-plumbing with copper, and repairing and painting the walls. Job costs averaged $5,000, and demand never let up. "At one point, we were up to four houses a week." In 1997, Sever was doing so many re-plumbing jobs that he decided to hire his own plumbers rather than split his profits with the plumbing sub. Volume for Sever Construction almost doubled, from $500,000 to about $900,000.
Eventually, the plastic pipe bubble burst, when the statute of limitations expired on the class action suit. Fortunately for Sever, he continued to do kitchen and bath remodels, with typical projects in the $20,000 to $50,000 range.
"Two years ago we saw the work drop off considerably," Sever says, as homeowners had to pay for re-plumbing on their own. With two full-time plumbers on his staff, the choice for Sever was to close down the plumbing side of his business or find a way to keep his plumbers busy. To make up for the lost volume, Sever started doing plumbing for other contractors. To generate leads for re-plumbing jobs, he depends on a network of real estate agents, home inspectors, and property management people with whom he had contact through the class action lawsuit. He also issues a newsletter. Today his overall volume still fallsbetween $800,000 and $900,000, with a quarter of that from polybutylene pipe replacement and another quarter from other plumbing work. The two plumbers on his staff of 12 have plenty to keep themselves busy.
Don't call it a basement
Ron Roell describes himself on his Web site ( www.ymove.com) as an "interior remodeling specialist," and he notes that basements -- or what he prefers to call "lower level projects" -- are his forte.
Ten years ago, "the fate thing" steered Roell to basement remodels, and the expertise he developed has kept him busy ever since. Refinishing basements may not sound glamorous, but, says Roell, "you're warm in the winter, cool in the summer, and there is no mud." There aren't many surprises either. "Because it's not pre-existing finished space," Roell explains, "you can see the components -- HVAC, electrical, plumbing. With a room addition, that's not the case." Also, there's no expense for footers or foundation work, all walls are interior, and consumers can more readily be sold a job that averages out at about $40per square foot on a house with a resale value of about $250,000.
Roell has operated remodeling companies for 25 years. Today about half the projects he does are basements, for two reasons: efficiency and referrals.
"When you choose a niche, you become much more efficient at it and more confident in delivering it," says Roell. "You know the details, so it's much easier to sell. When you're confident, you exude confidence, and people want to deal with confident people."
One of the advantages Roell cites is the fact that he can produce lower-level remodels more efficiently, because the subcontractors he uses know how he works and what he wants. Even though every project is custom, "In theory, it's similar to an assembly line," Roell points out. "The more you do, the more your subcontractors are used to what you're doing and the methods you're using. It's just a different floor plan. But your quality level is the same and your standards are the same."
Shawn Kumar's business, or a good part of it, is fixing up repossessed houses so that banks (his clients) can resell them. A typical repo job is about $5,000, and for that Kumar -- using subs -- will paint the house and often change out light fixtures, faucets, and carpet. Typically, when he contracts for a bank repo, Kumar goes to the house and does an inspection. He then sends a list of recommendations to the bank. The bank decides what portion of the work fits their budget. "So the final say is theirs," Kumar says. "They give you a purchase order with the list of things they approve. I make the product selections."
Since stumbling onto the repo business, We Build's volume mushroomed to $2.7 million three years ago, the major portion of it in repo business and all of that subbed out.
The great thing about repos, says Kumar, is that the properties are vacant. "There's no emotion to it. You don't have to deal with homeowners' questions. There is no customer except the bank, and all the bank wants is a decent product they can resell. That gives us a lot of flexibility in the product selection."
By the year 2000, the repo business had slowed, due to the rapid run-up in California real estate prices. But Kumar had gotten adept enough at doing small jobs that he started a handyman division. That augments his general remodeling work, which focuses on middle market kitchen and bath remodels.
"We learned a lesson about marketing and positioning," Kumar says. "You cannot be everything to everybody. Any niche allows you to better position and market your company."