Now that the housing industry is coming back, most kitchen/bath dealers are reporting much improved sales. But what, then, should be a company’s recipe for durable success…for gaining market share, revenue growth and improved return on equity year after year?
In my view, that subject constitutes the most meaningful chapter for kitchen/bath design firm owners in Jim Collins’ latest book, Great By Choice.
Ours is an industry that still remains fragmented nearly 60 years after its inception – largely because very few independent owners have developed a durable business success formula.
Collins’ research focuses on publicly held companies that outperformed their industry counterparts by a wide margin for several decades, mostly in turbulent times or in “Wild West” markets. What was central to each company’s dominance was something Collins labeled a “SMaC Recipe” – a “set of durable operating practices that create a replicable and consistent success formula.” Indeed, the word “SMaC” stands for specific, methodical and consistent.
Now design firm owners may very well be specific in developing their floor plans and contractual documents for clients. But, as a group, they are mostly underdeveloped, reactive, undisciplined and inconsistent in their business practices.
A solid SMaC recipe is an operating methodology for turning strategic concepts into reality – a set of sound business practices more enduring than mere tactics. While kitchen and bath dealers will attend seminars on best practices or share best practices in their networking circles, rarely have owners worked on their businesses regularly enough to get these best practices completely – or correctly – embedded in their operations.
You could easily say that a SMaC recipe is a little like a cookie-cutter approach. You want to create a business that follows a recipe that’s similar to creating batches of consistently formed and tasty cookies. Repetitions hone skills, processes, efficiencies of scale and wonderful experiences that produce genuine value, turning customers into fans.
The net outcome of a cookie-cutter approach in a kitchen and bath firm would be that a San Francisco consumer would experience exactly the same satisfying educational sales approach, budget engagement, quality project installation and customer service as a consumer buying a comparable project from the same branded showroom in Boston.
The clarity and specificity of the SMaC recipe helps team players sustain their direction and still achieve superior performance even when in extreme conditions.
Recipe For Success
The following represents what I would consider to be the ideal SMaC recipe for enduring business success in our field:
- Develop 2,200-2,500-sq.-ft. showrooms that are easily accessible, visible to target customers and designed as educational centers that display product in room environments. Each showroom should have one complete, live Great Room Kitchen, a bathroom display, several smaller, themed functional center displays, a seminar space, child’s play area, conference area, cabinet comparison wall, sample room, storyboard, digital messaging center and work stations for up to 4-6 staff members.
- Target steady 15-20% maximum revenue growth annually so as to preserve superior customer service, develop staff and management systems in support of that growth and maintain necessary gross profit margins.
- Developed during the annual budget preparation, have the company price formula equal the gross profit percentage necessary to cover the overhead, desired net profit and probable 2% profit erosion on projects. So, if one’s overhead (including owner’s market-rate salary), is 31% of projected revenue, and the desired net profit is 10%, then the multiplier over all costs would need to be 1.76 (i.e. 43% gross profit).
- As a mature organization, invest 3-4% of revenue in marketing that produces highly measurable results to generate quality leads and build the brand.
- Develop design, project management, office and sales staff – plus installation subcontractors – based upon detailed personnel specifications, furnishing on-the-job-training programs, written job descriptions and career paths while inculcating them with core values and corporate culture.
- Using an Operations Manual and/or industry educational resources, train all sales designers to follow a written sales process designed around their prospects’ purchasing decision needs.
- Empower targeted customers by developing a good-better-best budget with them for their project, thereby reducing any price resistance and making it easier to secure a retainer commitment.
- Embrace marketing strategies, educational tools/programs and enterprise management software that in tandem will have consumers perceive the company as more professional and a better value than its competitors.
- Develop a strategic plan that documents the vision for the company when it is all grown up, annually evaluating the gap analyses of its operational definitions and creating success factors with staff to close those gaps.
- Belong to a buying group to leverage/reduce material costs, thereby increasing gross profit margins on projects; use rebates to finance Emergency/Growth Fund or owner’s retirement.
- Engage a board of directors and/or industry-specific business coach to gain different perspectives on the state of the business, help determine the company’s economic driver and address new challenges.
- Take the net profit percentage planned in the annual budget from every check received and invest it in a liquid portfolio that ultimately equals at least 12 months of fixed operating expenses; use this fund exclusively to finance major growth/acquisition strategies or survival strategies during a recession.
Collins points out that SMaC recipes among great companies were rarely amended – on average only 15% over decades – and only after tactical actions of empirical creativity and productive paranoia were completed. That’s where an advisory board and/or coach can be indispensable.
“Far more difficult than implementing change is figuring out what works, why it works, grasping when to change, and knowing when not to,” wrote Collins. Having a key business advisor or board of directors will help bring valuable experiences and perspectives to your kitchen/bath design firm.
Ken Peterson, CKD, LPBC, is president of the Chapel Hill, NC-based SEN Design Group, which co-produces with KBDN a 2013 seminar entitled “Systemizing Your Sales Approach For Maximum Profit.” Peterson can be reached at 1-800-991-1711 or firstname.lastname@example.org.