Photo Credit: John Lee | Aurora Select
The economy is cyclical, and will eventually improve. Your business, intertwined with the economy, is going to grow, change, evolve, adapt, and grow again — or fail. Now is a good time to strategize for the future, improve systems, rethink staffing, solidify relationships with clients, network, and, yes, plan for growth. “Growth is still the obvious choice,” says Judith Miller, a consultant to the remodeling industry and a REMODELING columnist. “But [it should be] considered growth, which takes into account the major uncertainties and which builds on a company’s resources as well as the owner’s vision.”
Although each business faces different challenges, growth patterns are similar. Miller developed a way of looking at remodeling businesses after reading an article titled, “The Five Stages of Small Business Growth,” by Neil Churchill and Virginia Lewis, in the Harvard Business Review in the early 1980s. Filtered through her knowledge of the remodeling industry, Miller focuses on “degrees of delegation” as the main driver of change from one stage to another. Each stage is divided into two parts, she says, an “evolutionary” phase in which a company is on a smooth path and doesn’t need to invest in new things, and a “revolutionary” phase characterized by confusion, chaos, and dysfunctional systems, which is when change occurs.
According to Miller, the five stages look something like this:
1. Owner doesn’t delegate and does the selling, estimating, hammering, and bookkeeping and has a home-based office.
2. Owner has help in the field, a part-time bookkeeper, a home-based office, probably doesn’t charge correctly but has satisfied customers and is “doing well.”
3. Owner does all the selling, most or all of the estimating, and has good people in other positions such as office manager, production manager, and accountant and has an office outside the home. “This is the absolute sweet spot for a remodeling company,” Miller says.
4. Owner sells less than 25% of the time, has a functioning salesforce and only coaches and manages staff.
5. Owner is the visionary strategizing for the future. He or she has successful managers in place reporting to the owner.
How an owner navigates the challenges and issues he or she faces in each phase determines whether a business remains at a stage, grows to the next stage, or dies out. What follows are profiles of three remodeling businesses each at a different growth stage.
Donnie Settlemoir, Custom Carpentry of New England, Stage 1
Photo Credit: Matt Teuten / Aurora Select
Donnie Settlemoir
Custom Carpentry of New England
Portsmouth, N.H.; 10 years in business
2008 volume: $200,000
Business focus: doors, windows, and remodeling
Growth stage: 1
Goals: Spend less time in the field; increase sales. Long-term: develop a trackable business with systems and consistent processes
Challenges: Create a professional image; hire and delegate and still see good results and profit; better understand budgeting, break-even, and profit and loss
After mostly working solo for 10 years, Donnie Settlemoir is to the point where the questions he has been asking need answers. “I see these guys who say, ‘I’ve been working out of the trunk of my car forever. Never had a business card,’” he says, “It seems like they relive the same year over and over, rather than marking out growth. Maybe that works for them, but I’d like to grow every year, test myself. See how I can make it better and easier.” He pauses. “I don’t know if it gets easier, maybe [it becomes] more efficient.”
Settlemoir’s business is classic Stage 1: Despite having a lead supervisor for his door and window lines and a helper, Settlemoir spends 75% of his time in the field, and the rest, including nights and weekends, meeting with clients, preparing estimates and contracts, learning about new products, developing marketing materials, and attending to myriad other business details. His office is in two 14-foot box trucks equipped with laptop and printer. “There’s so much stuff; I’m like a chicken running around with its head chopped off,” he says.
Settlemoir wants to hire another carpenter; his revenue this year may hit $700,000. But, he says, “I never really see where my next job is coming from; it’s always a big surprise. How do you overcome that?”
Miller would point out that this business is in a revolutionary period. Change is going to come, but successful change won’t come unless it’s planned for and managed.
Chance Meeting
At a door and window supplier seminar, Settlemoir met featured speaker Shawn McCadden, a former remodeling company owner who is now a consultant and REMODELING columnist. “I thought I needed to know my product inside out, to know the technical aspects, benefits, and features,” Settlemoir says. “But once I met Shawn, I wondered if there was a [different] way to better my closing percentage.” McCadden recommended the CD Close the Sale from Sandler Sales, which Settlemoir bought and “listened to three or four times.”
He also began to use McCadden as a consultant. “I ask him about everything from how to answer the phone to what vehicle I should drive to presentations, to what I should wear,” Settlemoir says. “He came to the office and looked at things every step of the way.”
Now during downtime, Settlemoir tries to learn new things. “During the dip in the season — between December and February — I do things I wasn’t doing before — checking out new products, looking at new resources, different green options,” he says. He is attending more seminars and to home shows, not to have a booth there but just to network. “At first I wondered if it was worth my time,” he says, “but I’ve put myself in some new situations and have noticed a huge difference already.” For instance, he says, he discovered ICF (insulated concrete forms), got certified to install, talked to distributors, got a lead from them, and is negotiating on an addition using the material.
“I’ll never know everything about construction,” Settlemoir says, “but I know I can solve problems and find the answer.”
Setting a Focus
To justify hiring another carpenter, Settlemoir has decided to focus on sales and marketing. He recognizes the importance of differentiating himself from his competitors, especially during the slow economy. “What’s going to make someone choose my company?” he asks.
Settlemoir says that, for him, the best part of his job is selling and meeting with clients. “There’s a little uncertainty. I’m wondering if they’re going to choose me. The negotiations of it, the signing. I’m not afraid of ‘No.’ One thing I learned from Shawn is that once I present a price, I ask [the prospect] for a ‘Yes’ or a ‘No.’ Would they like to move forward or not? Sometimes if they don’t want to hurt your feelings they’ll tell you ‘maybe’ for four months, and then you drive by one day and see they’ve already hired another guy.”
He had developed his own website but says, “It didn’t have that ‘wow’ feeling.” He then hired a Web company to develop a website for him because, he says, “It puts me ahead of others. It creates instant credibility.”
ServiceMagic lead generation is responsible for about 80% of Settlemoir’s business. He uses the company’s surveys, and when prospects ask for references, he responds: Would you like to see how my last 30 clients rated me? “[Prospects] can see it on ServiceMagic’s site,” he says. “If they want to speak with somebody, I gladly give out a reference’s phone number.”
He also bought a bulk-mail permit and got a rural route of single-family homes to which he mailed postcards.
The window and door business has also been a good way to get Settlemoir inside homes and to create a client and referral base. “I’m able to transform a house in a short time; we’ll do maybe two or three jobs in a week,” he says. “I might get three references out of each client — nine leads from clients who are 100% happy.”
The Next Stage
Settlemoir has big goals: He dreams of one day having four sons to work in and then take over the company. (He is engaged to be married and has no children.) But for now he wants to be able to sell more, track his work, and increase his profit. He knows he needs to improve job costing, which he still does by hand. For large jobs, he creates a folder, keeps tabs on labor and materials, and checks at the end to learn his profit margins. He’s working with McCadden on building a Microsoft Excel job-costing spreadsheet.
And although Settlemoir’s business plans are not yet written down (he and McCadden are working on that), he does know that he wants to maintain a mix of business, continuing with the smaller, quicker door and window jobs as he increases the number of remodeling and additions projects he does. “I want to keep the wheels moving so I can have the future planned.”
Jeff King, Jeff King & Co., Stage 3
Photo Credit: John Lee | Aurora Select
Jeff King
Jeff King & Co.
San Francisco; 10 years in business
2008 volume: $3.2 million
Business focus: Larger-scale residential remodeling
Growth stage: 3
Goals: To be an “architect-driven company, but not design/build.” Long-term: revenue of $5 million by 2011
Challenges: Managing others and delegating; creating a budget he’s confident about in this economy; competition from Stage 1/low-overhead companies that charge less
This stage is characterized by a “new awareness,” Miller says. “As owners mature they’ll think about their companies differently.” In Stage 3, owners transition into more managerial roles, which can be difficult for many remodelers, who are typically hands-on types. Jeff King’s role has shifted considerably over the years.
Originally a sculptor and fine artist, who “backed into being a contractor,” Jeff King says that he didn’t have “a particular mission at first.” In his fourth year in business he tripled his receipts but took home 20% less money than the year before. “It rang a bell that something was wrong,” he says. The following year he joined peer review group Remodelers Advantage, and only then did he begin to learn about things like gross profit margin. “I wasn’t losing my shirt,” he says, “but I didn’t have what I needed to know to run a company.”
That same year, 2004, King stopped working in the field, hired an outside bookkeeper and office manager, and took on the roles of production manager and salesperson. Two years later, he moved his office out of his home and transitioned a production manager into the head of production position. During that time King set up job descriptions with benchmarks and accountability for each position, including field staff. “Now we have clear, well-defined written systems from the first lead that comes in all the way through closeout,” he says.
King’s current job description includes sales, estimating, and marketing. “I generate the initial estimate and make sure the production manager is on task,” he says. “I maintain a strong vision for today, three years, five years ... all those planning and vision items.”
The economy was good during the years that King was moving through Stages 1 and 2. But now, the economy, he says, “is shaking [my growth plans] all about. It’s hard to create a budget I’m confident in.” King has more leads this year than in the past two years, but he can’t tell if it’s because the company has reached a certain level of recognition or if there’s a “shopper mentality.”
King faces more competition from other similar remodeling companies as well as from “Stage 1 and 2 contractors who have lower overhead and don’t understand how to make a sustainable margin.” The company is doing competitive bidding as opposed to negotiated contracts, and it has been taking on design/build projects, which are typically smaller than the high-end work that King would like to be doing.
And, he says, “from a purely survival standpoint, we’re entertaining anything that comes through the door to keep the company intact,” including small jobs that he would usually only take on for existing clients. The company is not only doing these projects but is now marketing to develop its service department.
Visionary’s Challenges
King says that he is not naturally talented as a manager and admits to having “micromanaging tendencies mostly driven by the fear that something would fail or that clients wouldn’t get the service they need.” For him, the most difficult thing is to “let people who thirst for responsibility have it and run with it.”
It was a visit by King’s business peers and their critique of his company that opened the remodeler’s eyes to the need for change and motivated him to break the cycle. “I wanted everything to be perfect when the case study was going to happen,” he says. “I was manic and tried to be the sole leader.” His peers brought to King’s attention that there were some decisions being made in the office that could be made in the field. King’s staff were asking for communication devices in addition to their cell phones, so he gave them laptops, printers, and fax capability in the field.
Now if something goes wrong, the production manager handles it and lets King know only what he needs to know. Although hiring competent staff is a challenge at any stage, King’s success in surrounding himself with talented, smart people has helped him to delegate. “Once I hired a [bookkeeper] who knew more than I did, it was easy to let go,” he says. And King has a consultant come in once a month to monitor the company’s processes and systems.
Another thing that helps King, yet is also a challenge, is developing the business’ systems and procedures. The company has fairly comprehensive systems and an operations manual. “Some of the forms don’t get used the way we talked about using them,” he says, “but what flowed from their creation was developing benchmarks that allow for accountability ... and [give] us a framework for success.”
Yes, there have been hiccups along the way, and King knows there will be more. While he has always had a conservative (15% to 20%) growth plan, the current economy will pull him back from that. But he feels that he is continually learning, increasing his self-awareness and confidence as his knowledge grows. For King, Stage 3 is a “comfortable” place to be. (Miller calls it the “sweet spot” for remodelers, but adds that, because of the economy, it “may be the [new] luxury box” in terms of doing higher-end projects.) “It’s a plateau, and things are chugging along,” he says.
“When the next revolution comes,” he adds, “we will be a $5 million company.” He is hoping to do 10 $500,000 jobs per year. “If our model works and we continue working with high-end clients and architects, I don’t foresee the need to transition to some kind of salesforce. I may not continue doing estimating, but my role as rainmaker will become more important than estimating at that point.”
Gary Potter, Potter Construction, Stage 4
Photo Credit: Michael Hanson | Aurora Select
Gary Potter
Potter Construction
Seattle; 30 years in business
2008 volume: $2.8 million
Business focus: Design/build
Growth stage: 4
Goals: Develop a salesforce over the next nine years, when Potter will turn 65. Long-term: coach and manage only
Challenges: Managing, training, and delegating to others; hiring salespeople; tweaking and improving systems
Gary Potter had a tenuous hold of Stage 4 until the economy tumbled. His biggest challenge to getting back there, which he plans to do within four years, is hiring a salesforce. Since he and one other person do all the selling, he wonders: “How do you graduate from being a salesperson to being a sales manager while still being a salesperson?”
Learn to Coach
Potter, who started his business in 1979, feels as if he has grown up along with the industry. “The remodeling industry is still very young,” he says. “It didn’t exist much before 1950.” He became an early devotee of Linda Case and Walt Stoeppelworth and joined his local Home Builders Association and Remodelers Advantage. He says that he owes his success to those groups.
He learned to take off the toolbelt, a step he describes as “a big hurdle,” and to eventually begin hiring employees. Potter realized that, over the years, each time he delegated to others, he was actually “changing careers,” becoming a manager and coach instead of a “doer.”
The sales manager transition has been particularly difficult. “I’m a novice sales manager, an amateur,” he says, “and I have to train people in the most complex type of sales — selling something that doesn’t exist.”
He also recognized that his management style was “to berate, belittle, and bewilder, which didn’t work well.”
To overcome the challenges, Potter goes to Sandler Sales training, where he learns selling techniques, how to assess whether prospective hires will be adept salespeople, and how to manage a sales team. His Sandler coach, Jim Stephens, a successful remodeler in his own right (he owns Stronghold Remodeling, in Boise, Idaho), showed Potter “the way of positive reinforcement.”
Potter says that he had read about it in books and heard about it in seminars, but he was too stubborn to change. “I was finally willing to listen when Jim said it to me,” Potter says.
Now, he practices his new tasks: “I schedule a coaching session each week with my salesperson, in which I act as the coach. It’s a role I have no history with. My advice to new people [getting into this business]: Go out and coach your kids’ T-ball team.”
As you hire salespeople, you will need more people to produce the jobs they bring in. Then you need more reports to track your jobs. “You can’t be as in touch with each customer,” Potter points out. “You lose that hands-on [aspect].”
Potter has systems in place but knows they must be improved, tweaked, and regularly enforced. “I have to admit, we don’t use our systems adequately,” he says. There’s also the issue of scalability. A system that works well for doing three jobs simultaneously may not work for doing seven jobs simultaneously. “[So] we’re constantly improving systems in order to grow,” Potter says.
And although checklists are important, they must be used properly. “We [develop] a system with the staff and make a checklist to prove we’re moving down that path,” Potter says. “But does that checklist actually get used?” he asks. “Once yes, twice usually, three times — probably not.” There has to be someone enforcing so that “the improvement gets implemented and becomes part of our structure.”
Growth, Interrupted
“I was fumbling along until January 2008 trying on my different hats when a great thing happened,” Potter says. “We didn’t have any more sales.” That may sound like an unlikely response from a business owner, but Potter sees the current downturn as a time to concentrate on things that he wouldn’t previously have focused on. “I decided this was not the end of the world,” he says.
To be sure, Potter cut the number of employees in his company from 20 to 12 in one day in March 2008, many of them field staff. He now works with more subcontractors. He knows that he may have to make another cut in staff but is hoping that through Sandler he “can learn and produce more sales and not have to make another major layoff.”
He believes that the recession is making him more focused. “I used to have wishy-washy goals,” he says. “Now I’m more clear about what I need to do each year. I need to develop salespeople and be more efficient with how I sell. I don’t need to load myself up with paperwork and writing specs. That’s someone else’s job. The staff’s job is to make sure the customers are just as happy all the way through after I sell the job.” —Stacey Freed, senior editor, REMODELING.
(Hanley Wood, the company that publishes REMODELING, has a business relationship with ServiceMagic.)
This is a longer version of an article that appeared in the July 2009 issue of REMODELING.