Leading the Way
authors Anita Shaw
The phrase “survival of the fittest” is one that people are familiar with and understand, whether it refers to their personal wellbeing or professional standing. In business, proper planning is key to survival, as witnessed during the Great Recession.
Established kitchen and bath professionals have a keen interest in seeing the industry thrive for decades to come, and many are interested in sharing their knowledge and expertise with the next generation of dealers and designers. This premise led to the creation of the NEXTgen Future Business Leaders Conference, held in October at the Lost Pines Resort in Austin, TX.
Sponsored by The SEN Design Group, the conference was designed to provide real-life strategies and business tactics for newcomers to the kitchen and bath industry – beyond the beauty of what is being designed and into the heart of the business. Sponsors of the event included NARI, Caesarstone, Medallion, Task Lighting, WarmlyYours and OperateIT. Guest speaker presentations and workshops were geared to anyone interested in owning and/or running a dealership within three years time, as well as those preparing to sell their businesses in the next few years.
To understand this topic’s importance to the industry, Speaker Paul Hajek, MBA, CVA, founder, Synergy Business Development, noted during his presentation that there are an estimated 79 million baby boomers, but only about 50 million GenXers. He added that baby boomers own 63% of the private business in the U.S., and 75% plan to transition over the next 10 years. That startling statistic means that the time to prepare for that transition is now, according to NEXTgen. The group plans to hold this event on an annual basis, with next year’s conference scheduled for Oct. 4 and 5 at the same location.
THE STARTING POINT
While many may be toying with the idea of starting their own business, it’s hard to know just when to jump in. Jay Acunzo, keynote speaker and host of the Unthinkable podcast, provided insightful opening remarks in his talk, “How Do I Know I’m Ready.”
Acunzo stressed the importance of non-conventional thinking when it comes to succeeding in a competitive industry. The traditional way to approach things is to tell people how long the company has been around and that “we pride ourselves on our high-quality products,” just like everyone else, he noted. “The information age means everyone can get best practices information. It ends up making us average. You’re working far too hard to get average results.”
He urged attendees to trust their intuition. “Do we want an expert to hand us the answer, or do we find the answer from within?” he asked. “Intuition is the ability to succeed at higher speed. How do we use that successfully?”
Acunzo believes business owners need to have an aspirational anchor, which is intent plus hunger. “What is your aspirational anchor? Why are you the team to do it? What is your unfair advantage? What makes you unique?”
He added, “If you want to change a behavior of your customer, you need to focus on the emotion and the behavior. People aren’t rational – they are emotional.” He continued, “Don’t demand action from customers – inspire it. Our work is about inspiring our true believers, not coercing the skeptics. Too many people go after people who don’t want to hear from them. Find the true believers, and lean on them to get you more customers.”
IN THE BEGINNING
KEN PETERSON, CKD
For those whose intuition tells them they are ready, the question becomes, “What’s next?” Making the decision to move forward to start a business is only the first step. Ken Peterson, CKD, founder and president, The SEN Design Group, in Charlotte, NC, tackled the subject in the presentation, “Four Most Important Critical Decisions for a Start-Up.”
Decision One, according to Peterson, is to commit to using financial statements to make sound decisions – based on hard data. “You need to understand the balance sheet,” he stressed. “It’s a measurement, a photograph of your business since you started; it measures your cumulative performance.”
Using the accrual accounting method is crucial – where a job is recorded as “income” in the month it is substantially completed. “Inserting it as income and done [as the money comes in], as in a cash account, without putting the expenses against it, gives you an inflated profit,” he explained.
He also urged business owners to review their income statements. “Most designers just glance at this and let their accountants handle it,” he stated. By comparing income statements on a monthly basis to the previous year – percent change and percent of income – the business owner can spot patterns and get an idea of how the business is doing.
Choosing the right business model to match the chosen financial goals and personal strengths is Decision Two, according to Peterson. The start-up business owner should determine whether a studio business model, where they will wear the hat of sales and design, and hire a support staff, or a showroom model, with departments and department heads, is best.
Decision Three is determining the correct price formula for an operation. “When you don’t budget your business, you’re not likely to realize your financial goals,” Peterson observed.
“Pricing is a science. Selling the price is an art,” he continued. “Most dealers are underpricing their projects by 15-20%. Learn to know how to price your projects properly.”
Peterson recommends budgeting three years at a time, and basing that budget on the owner’s salary, overhead and desired net profit. An emergency fund that equals 12 months of fixed expenses should also be part of the plan.
The final consideration for new business owners is to design a marketing system around clients’ needs. “The optimum time to ask for and earn your retainer is when your customer has determined and understands your expertise and credibility,” he offered.
Credibility can be relayed through the use of Facebook and Houzz profiles, as well as consumer seminars. The client need is information, so the showroom should be an education center, with elements such as storyboards, cabinet comparison wall and digital product presentations.
“The only way to differentiate a product or service is in its delivery,” Peterson added. “As the designer, you are part of that delivery. It’s about you and how you present your package that truly makes the difference.”
UNDERSTANDING MONEY ASPECTS
Continuing the focus on the financial aspects of running a kitchen and bath firm, Ken Olan, co-founder, ExactMats, Inc. in Houston, followed with two presentations: “How to Understand & Read Financials,” and “The ABCs of Capitalization.”
Olan began his presentations by stressing, “There is a rich vein of gold in your financial reports. The information you need is always there – you just have to know how to see it.”
Financial statements are a digital health report that “explain the quality of your decisions and activities over time,” he continued. The balance sheet is a snapshot of the health of a company since its inception.
“The status of a company is expressed in terms of assets and liabilities, with assets equaling liabilities plus equity,” he explained. “Assets are the thing the business controls or owns, while liabilities are the company’s financial debt or obligations that arise during the course of its business operations.”
Olan urged business owners to start with a clear definition of the business model to create a strategic plan. “What are your business objectives and, for each objective, what are your strategies to achieve them?” he queried. “You’re laying out an understanding of what you’ll need to succeed. Those insights become the seeds of your funding strategy.”
To plan properly, a three-year capital growth plan should be put into place. “Expenses may start out higher than revenues, but the key will be the crossover point, and whether you have enough capital to reach that crossover point,” Olan stressed.
Why plan for three years instead of just one, he questioned? “Planning for a longer term forces you to think strategically vs. simply tactically. You need to think of your enterprise as a long-term body of work. If you want to get ahead, think ahead.”
Once a business owner has established a business and spent years nurturing its growth, the question turns to what the business is worth, and when to divest. Paul Hajek tackled this subject in his presentation, “What’s Behind a Business Valuation.”
In addition to the statistics mentioned at the beginning of this article, Hajek noted that, of the baby boomer business owners, 66% are not familiar with all exit options; 83% have no written transition plan; 49% have done no long-term planning; 40% have no exit plan, and 56% have little idea what their company is worth.
And, once the transition is made, many are unhappy with their decision. “Twelve months after selling, three out of four business owners surveyed profoundly regretted the decision,” offered Hajek. “They don’t know what to do with themselves after the sale, and they are unhappy about someone else controlling their legacy.”
Another reason to plan ahead, according to Hajek: 80% of businesses valued at less than $50 million on the market don’t sell. Mergers and acquisitions professionals believe that most business owners are not prepared for a transfer, and an overwhelming majority note that business owners have unrealistic expectations of what their companies are worth.
When selling a business is being considered, Hajek recommended taking a closer look at financial statements and segregating non-operating assets and liabilities – all the things found on the balance statement that are not needed to run the business. In addition, the value of the business can be determined using the company history, forecast and industry/economy research to project future cash flows, among other things. A knowledgeable buyer will review the company’s past performance, future performance, the business model and its risks, and alternative investments.
The things a seller should ponder when planning an exit strategy are: financial independence, the value of the company, estimated departure date and legacy.
SELLING THE CONCEPT
MARK HUNTER, CSP
Mark Hunter, CSP and author of High-Profit Prospecting, was tasked with convincing the assembled that “Profit Isn’t a Dirty Word.” Hunter provided tips on running a successful company, noting that properly trained and happy employees are key, as well as doing business honestly and being a leader in the community.
But attracting the right customer base and treating that customer base appropriately is the crux of success. “If you fail to sell with integrity, you get clients who lack integrity,” he stated.
He stressed that, often, salespeople are not firm on price because they don’t believe in it themselves, and “it’s our own mindset that keeps us from raising our prices.” He added, “People want the best when it comes to a remodel, so why are we afraid of profit? When we charge a little more, the customers perceive more value.”
He acknowledged that there are some people who are cheap, and “cheap people hurt you. You can’t take a Wal-Mart customer and make them a Nordstrom customer.” He urged attendees to get rid of cheap customers because they weigh the business down.
A strategic plan explains the “how” a business will achieve its vision and mission, according to Kevin O’Neill, founding partner, Accelerant Growth Principles LLC in Anniston, AL, who tackled the subject of developing a strategic plan. “A strategic plan defines the goals and objectives of the business and its organization. It establishes key strategic initiatives, milestones and timelines for achieving a business’ goal.”
O’Neill believes that strategic planning should be updated every two to three years, while the vision, mission and values of a business should be reviewed every three to five years. Key strategic initiatives for a company include systems and technology solutions; vendor partnerships; showroom and office facilities; financial and operational goals; staffing and training resources; sales pipeline development, and market development.
“The mission is the reason and purpose for your business, and your mission statement lays the foundation for employees to know what the company is doing and where it’s going,” he explained. The vision statement is a future-based description of the organization’s purpose and aspirations as the mission is accomplished; it is what the organization will become, he added. “And value statements are the principles and ethics of an organization, and guide the organization’s behavior as a whole and individually.”
Since kitchen and bath dealers do not manufacture product and rather are a complex service provider, having sound service and the right employees in place are key elements to success. “You’re not selling products…you’re selling yourself, you’re selling your employees, you’re selling the experience,” he reported. Because of this, he believes “recruiting, training, motivating, compensating and retaining top personnel will be among the owner’s most impactful responsibilities.”
A TOP 10 FAILURE LIST
Why do businesses fail? Dan Luck, education manager, The SEN Design Group and owner of Bella Domicile in Madison, WI, offered his top 10 reasons:
#10. Location: Luck noted that his own business was originally located next to a gravel pit. A change in location, along with name change and business direction, led to success.
#9. Out of control growth: Businesses can be ruined by over expansion. Sometimes less is more.
#8. Lack of a succession plan: Business owners need a clear understanding of where their business is going and how they’re going to get there.
#7. Lack of cash cushion: Having enough liquidity to survive rainy days is key, as well as a good line of credit.
#6. Failing to change with the times in a changing or declining market: Those companies that don’t change and adapt could be looking at a failure situation.
#5. Operational mediocrity: Those that have the ability to execute their great ideas are ahead.
#4. Operational inefficiencies: It’s important to have a three-year profit plan, but it should be reverse engineered.
#3. Dysfunctional management: A lack of focus, vision and planning can lead to failure.
#2. Poor accounting: Businesses should be using accrual accounting so that decisions can be made based on the company’s current financial state.
#1. Owner’s ego: Don’t be overconfident when making decisions. Partner with peers and outside resources.
Luck added, “Remember, companies do not plan to fail, they just fail to plan.” ▪