By Christopher Walker. In 1990, Don Strong started Brothers Strong, a house painting company, with his son Michael, in Houston. After two years they expanded their services to general remodeling, and after six years the company was growing fast. Too fast.
"We would not say no," Strong says. "Somebody would say, 'We've got a house that needs painting. Would you like to bid on it?' And it was 20 miles away, and we'd say, 'absolutely.'" Taking on more and more low-profit jobs meant hiring more and more employees to handle the work. "We were trading dollars," Strong says. "It just wasn't controlled growth."
The implications of growth -- investing more money, hiring more employees, developing more sophisticated business systems, delegating more vital responsibilities to employees -- lead many remodelers to choose to stay small. Others focus so much on growth, they lose sight of profitability. Highly successful remodelers find a happy medium and develop a plan to achieve it.
Find the right rate
For Dennis Gehman of the $2.5 million design/build firm Gehman Custom Builder in Harleysville, Pa., the ideal annual growth rate is 20%. "As you grow you need to redefine systems and make new systems," Gehman says. He wouldn't be able to adapt his company fast enough to keep up with a higher rate. "You could do it for a period of time, but on an ongoing basis you would drive everybody nuts."
Photo: Gordon Studer
Finding that rate doesn't mean just pulling a number out of thin air, and Gehman learned about the relationship between growth and employee morale the hard way. His company remodeled a barn into a new office for his company that he thought would give him the room to continue to grow. His employees didn't like the decision, but he didn't know that until it was too late. "They would have rather had money in their pockets instead of increasing overhead," Gehman says. In the 18 months following the move, his company experienced an employee exodus. Seven who left became competitors. "I was focusing on growth and lost sight of the day-to-day things," he says. "In hindsight, I should have been a better communicator and brought people along in the process, instead of just saying, 'Hey, we bought a property and here's what we're going to do.'" So Gehman began putting his growth plans in writing for all employees to see. "We bring the employees along with what's going on," he says. "We let them know our goals and what we'd like to do, because if they don't want to cooperate, we're not going to make it without them."
Wayne Winn, owner of Home Town Restyling in Hiawatha, Iowa, agrees that growth is hopeless without dependable and empowered employees. "So many times when we're small business guys, we can't delegate because we don't think anybody can do as good as us," he says. "You have to let those ropes go. If you have to hold their hand, then you've got the wrong people in there."
In its 16 years in business, Winn's company has seen annual growth as high as 44%, as low as negative 5% (his only year of negative growth, which stemmed from a problem with his former partner), and just about everything in between. Winn's ideal annual growth rate for his company, which concentrates mostly on windows, siding, and sunrooms, is between 6% and 9%. At that rate, Winn can easily keep production capabilities growing on a par with sales, which is vital for maintaining profitability.
In periods where his company grew more than 25% in a year, Winn encountered cash flow problems. "When you increase your sales, you increase your costs," he says, "because now you've got salesmen making a lot of money because they're selling a lot and you've got more management, more overhead, more lead costs." If you can't expand your ability to install, you'll have more money going out than coming in. "It's nice to say we did $600,000 last month," Winn says, "but if I only installed $375,000, I can tell you what my financial statement is going to look like. I lost money."
When sales grow too fast for production to keep up, service oriented contractors can also pay with their reputation. Winn's promise to customers is a six- to eight-week turnaround from order to installation. When production couldn't keep up with rapidly growing sales, that turnaround time doubled, upsetting customers who knew his company's reputation and expected more. "You can't afford to go out and just hire anybody," he says, so you have to take control of growth if you want to take care of your customers.
Photo: Gordon Studer
Michael Watts, president of full-service design/build firm Bel Air Construction, Jarrettsville, Md., relies on his lead carpenters to manage the top quality service he promises. "We found that it takes a minimum of a year to get a lead carpenter up and really running well with our system," he says. "So if you're short on labor, you can't solve that problem instantly." To help avoid it, Watts hired a marketing manager. She's responsible not only for increasing lead flow when growth is too slow but also for holding it back when sales outpace production capacity. The company's most important form of lead generation is direct mail. "The thing about direct mail is that you can control it," Watts says. Last June he found his company ahead of pace for the 20% annual growth he considers ideal, so he told the marketing manager to cut down on the mailers to slow the lead flow and allow production to catch up. When sales are slow, he has her turn the direct mail dial up. "I think you can stay the same size with word of mouth," Watts says, "but I don't think you can grow your company 20% a year on referrals, especially in light of September 11." Watts tripled his advertising after that tragedy and watched while business for other remodelers without lead generation systems dried up.
Have a plan The need to generate new leads, balance growth in sales and production, and keep employees abreast of your vision for the company all make developing a written growth plan critical. Don Strong learned his lesson about uncontrolled growth from his early take-any-job years. He now has an aggressive growth strategy in place that accounts for where the extra work will come from, how they'll get it, and how they'll complete it.
Strong hired a professional consultant to help him develop the plan. "We set up long-term goals, immediate goals, and intermediate goals," he says. In five years, Strong wants his $1.5 million company to be between $7 million and $10 million -- an ambitious goal that requires a significant investment.
Specific systems and steps map the way. A professional marketing firm helped Brothers Strong develop more sophisticated selling materials that go to prospects in Houston's tonier ZIP codes. As the new leads come in, the growth plan has Strong increasing his closing efficiency by requiring clients to sign a professional services agreement and pay a fee before he'll do a complete estimate. Increased production capacity comes not just from hiring but also from more subcontracting and an ambitious technology plan involving onsite laptops and wireless interface between field and office software. "We're looking to use the technology so that everybody, especially the production people, can handle a greater volume," Strong says.
The market, though, has a way of thwarting even the best plans at times, and Dennis Gehman recommends remodelers take that into account when developing a strategy. "You have to set up a business plan each year in terms of best case scenario and an alternate in case that doesn't happen," he says.
Wayne Winn recommends only taking on the risks of growth once you have the right "foundation" in your company. "In that sense, I mean sales, marketing, installation, and strong credit," he says. "As you grow, you'll have periods of cash flow problems. Make sure your credit line can handle the pressure."
The plan also, according to Gehman, needs to take full account of your market's demographics. If you're going to sell more, you've got to know what it is you're going to be selling and who you'll be selling it to. "And you need to plan out how you go about reaching these people," Gehman says.
Photo: Gordon Studer
Even with all the required planning and the potential pitfalls, Gehman has no plans to stop growing anytime soon. "We need to be constantly changing and growing because the bar is being raised," he says. "It's not just construction that's setting the bar, it's the service industry in general."
Michael Watts can't imagine a point at which he would stop growing. "It's a danger if you're not growing," he says. "If you don't have a vision, you're not attracting top people. You live or die on the people that you have, and I think people want to be a part of something that's winning." He says the growth doesn't necessarily have to be in sales volume, but it has to be something that's measurable. Watching a 50-year-old family-owned hardware store slowly go out of business in the wake of a big box convinced him to always stay ahead of the curve, and it's gotten him into higher-end work. "[The corporate retailers] may be able to put a door in, but they can't do a major addition," he says.
Don Strong instituted his aggressive growth plans with an eye toward leisure. "So many remodelers go eight, 10 years and have given up everything working six days a week," he says. If his plan works, he'll have the life he wants. "A nice lifestyle, a nice retirement, nice vacations, and just to enjoy the life that you worked so hard to get. That's what I want."