Just as the population is aging, so, too are the people who make up the kitchen and bath industry. As owners of today’s kitchen and bath firms begin to think toward retirement, the industry looks to the next generation of dealers and designers to carry on the important work done by these kitchen and bath firms.
But this creates certain challenges. For older kitchen and bath firm owners, questions arise about what they can do to make their businesses more desirable and profitable so that they can sell this valuable asset when they’re ready to start the next phase of their life – as well as to whom they might look to find a buyer who will carry on the work they’ve done.
At the same time, for young, up-and-coming designers, it’s important to work on building not just design skills, but the business skills needed to ensure they have the ability to run these kitchen and bath firms of the future.
This month, KBDN introduces NextGen Business Matters, a quarterly column authored by a father and daughter business team, that will focus on matters addressing business succession, generational differences and how dealers and designers can prepare for the future – whether that means older owners selling their businesses or soon-to-be younger owners learning the all-important business skills needed to become a successful entrepreneur in the kitchen and bath industry.
Ken: We have a serious problem in our kitchen and bath industry. The vast majority of dealer/owners who made it through the 2008-2009 Great Recession are facing retirement soon, and collectively we had done a poor job educating the next generation on how to run a business.
Leah: Let’s face it. Even if we did have this education readily available, we’ve done a poor job of identifying who the next generation is. Who is going to buy these businesses? Coming from the corporate world, there doesn’t seem to be a lot of executives interested in these kitchen and bath firms. Yet they certainly have the money to pay a premium price – and would welcome the opportunity to leverage their well-honed corporate management and marketing skills in a small business they owned. But few dealers have developed their teams sufficiently, so revenue would not continue to grow unless the owner remained, tethered to the business, to carry the sales load. And fewer still have automated their companies so their operating procedures aren’t parked in the owner’s head.
Ken: Well, a lot of young people coming out of design schools have landed entry-level design assistant positions with these dealer/owners. Among their many accomplishments, the National Kitchen & Bath Association has done a fine job in creating and developing industry-specific curriculums with educational institutions around the country. Many of our members have tapped this source for their personnel needs. Eventually, with a half a dozen or more years of experience under their belts, these people could possibly elevate to buying out their owners.
Leah: True, there are some really talented young designers coming into the industry every year. But these institutions historically haven’t provided them anything in the way of business management education – like how to write a business plan, understand financial statements, buy a business or price their services so they can make a decent net profit.
Ken: From my vantage point, too many dealerships are marginally profitable anyway. These designers probably think their bosses are making a ton of money when, in fact, most have weak financials. And that’s an understatement! Most dealers haven’t made enough net profit annually to build up sufficient funds to properly backstop their businesses. Most don’t even know what those numbers should be.
Leah: Exactly. It’s why so many of the vendor partners I regularly speak with today are concerned about kitchen/bath dealer succession – especially the cabinet manufacturers. They have now had a few good years of sales growth. But with the aging of the key accounts who dominate their networks, continued revenue growth is in question. They are scared that many dealers in their 60s will simply shut down operations because they won’t have anyone to sell to. Going forward, making up those millions of dollars of lost sales is going to be a huge challenge for these manufacturers and our industry as a whole.
Ken: I am going to go out on a limb here. Frankly, the industry probably could have served kitchen/bath firm owners a bit better. Over the years there’s been a lot of focus on design professionalism and edgy, fashionable products. It may be what owners and designers love, but probably not what they needed the most to succeed beyond their current level of production. In my view, there could have been considerably more focus on financial management, marketing, professional salesmanship, sales management, technological innovations and efficient operational management – just to name a few of the pivotal disciplines necessary to trigger both professional and business growth today.
Leah: You are right. With greater knowledge in these areas, and the implementation of this knowledge in their operations, kitchen/bath dealers would be far more productive, efficient and profitable. It’s very unfortunate that these owners don’t see that. Their businesses could be turned into highly marketable assets within a few years of concentrated development. They could stand to sell their businesses at a real premium.
Ken: They don’t see it because they are just too busy, grinding away in their operations six days a week. Sometimes seven. I think the three most used words in this industry are: “We’re really busy!” But being busy does not directly equate to people being productive. Or a company being profitable.
Leah: I hear that all the time! Our vendor partners hear the same thing, too. But as you always say, Ken, we have to do a better job working “on our business rather than in our business.” And as this current generation of business owners looks toward retirement, what are we teaching this next group of owners about successful business strategies? Think about what they need in their arsenal to make them successful: financial planning, overcoming startup challenges, the pros and cons of buying an existing business, the fundamental relationships with business accountants and attorneys, and the list goes on…
Ken: There are resources that do exist today – business and marketing management schools, online courses, industry-specific business coaches and now NEXTgen: Future Business Leaders Conference (see related story, SEN Announces NEXTgen Conference). This next generation needs to take advantage of them!
Leah: Sometimes it can be hard to get started. It takes a lot of self-discipline. People can become paralyzed at the enormity of the opportunity. Or they can feel paralyzed by how much they still need to learn. But really, for anyone who aspires to owning his or own kitchen/bath firm one day, it’s important to take advantage of the educational programming that’s out there. They just need to take the first step to get started.
Ken: You know, we can’t just put this on the rising leadership. Our industry-manufacturing partners need to help as well. The industry should rally around these guys – the ‘next generation,’ as you call them – who want to run these dealerships. Together, we need to identify who these people are and support them in providing comprehensive business education. After all, the manufacturers whose products these dealerships sell must recognize that these are the very people who will be most responsible for their future revenue growth. Collectively, those looking to retire, those looking to rise up and own a business one day and everyone in between needs to help support the next generation of the kitchen and bath industry.
Ken Peterson, CKD, is founder and president of the SEN Design Group, the industry’s first buying and business development group. Leah Peterson joined her father in 2013 after more than a decade in corporate sales and marketing; she is now the company’s executive v.p. Representing both industry-specific and corporate business experiences, as well as different generational points of view, Peterson & Peterson will be addressing industry issues for KBDN in a new, quarterly column, NextGen Business Matters. For more information on this column topic, please contact Ken at [email protected] or Leah at [email protected]. The Petersons welcome comments, questions or concerns.