King agrees that by the second year Menn and Poticha should be OK, and she offers the following mathematical rule of thumb: “If you want to go from $1 million to $1.5 million, that’s a difference of $500,000. Divide that amount by 10. You need $50,000 in cash to grow to that level because you’ll increase marketing, receivables, and vendor costs.”
SAME JOB, DIFFERENT SIZE Like DCC, which saw opportunity in smaller jobs, many established remodelers are taking on niche, maintenance, or handyman services to increase revenue.
Rather than start a new company, Alan Lutes, owner of Alpha Remodeling, a design/ build company in Ann Arbor, Mich., decided that an in-house small-jobs division could help increase revenue.
Lutes studied market indicators and knew that remodeling was going to be soft. He watched the tanking auto industry, the bankruptcy of other companies, and the negative job growth. “The handyman thing makes a lot of sense,” he says. “We went back over our lead flow. We figured that we referred out more than a million dollars [in handyman work]. Plus, we had a client base of over 1,000 clients who already thought … great things about us. It’s a wonderful way to add people to your customer list so that when they’re ready to do a large project you’re already there [for them].”
Since it’s easier to do projects similar to what your company is already doing, Lutes chose jobs a notch above handyman. He says it was difficult to find people who were multitalented enough to be jack-of-all-trades while also understanding profit and markup. And he also found that a lot of people who called themselves “handyman” were operating illegally. “That would be a liability,” he says. “By being one notch above, the sales model is a bit different; project management is different.” But the model is something Lutes understands.
OWN THE PRODUCT Growing your business horizontally by offering existing clients a new service may also lead to vertical growth as more people learn about your specific service.
Cory Hogan owned what he calls an “all-purpose remodeling company that did every kind of project possible, including basements.” After several years, he discovered that he enjoyed doing basements and that the work was profitable, so he began to specialize in them. There was great demand in his market and, at first, no competitors. “Since 2001, we’ve averaged 248% growth each year. This year [2006], we’ll finish out about $1.5 million,” says Hogan, whose company is now named Upscale Downstairs. Each basement (average price $40,000) takes about 12 weeks to complete; the company does about 50 jobs a year.
Hogan knows that doubling the size of the business every year is not realistic, but he’s not worried about the speed of growth. Before starting this venture he wrote a business plan, setting two- and five-year goals. The company changed everything it did, including its policies and its attitude; they now write everything down and hold weekly coordination meetings. Hogan invested a lot in administration. He scaled back the number of employees from 15 to 10, running jobs mostly with subcontractors and a lead carpenter. He spends a lot of time marketing but has delegated his other responsibilities so he can “keep the ship steered.” He realizes that as the company becomes more established, growth will taper off, and he’s prepared for that.
What Hogan does for basements, Bob Amberson, in Phoenix, does for kitchens —with a twist. As of January 1, Amberson Cabinets became known as 1 Week Kitchen Inc. Amberson brought everything in-house and invested in tools, infrastructure, and training in skills such as solid-surface fabrication. He’s saving money in the long run, he says, by not supporting the shops — and the insurance costs — of each individual trade.
Kitchens range from $10,000 to $20,000 — mostly rip and replace — and Amberson offers a wide variety of cabinets and counter-tops. It takes three to five weeks to get the materials and one week for labor. “The whole concept,” he says, “is to avoid having people living without their kitchen for five weeks.” Between May and December the company had done 25 kitchens. “In the last three months [of 2006], 1 Week Kitchen has done more business than [Amberson Cabinet] did in the whole first half of the year,” Amberson says.