Ours is an industry that in many ways is more people-intensive than capital-intensive. To be successful, startups will definitely need proper capitalization (usually through long-term loans) to finance their showroom displays, office equipment, organizational expenses, and 4-6 months of fixed overhead expenses. But good cash flow from assertive payment terms with residential clientele enables most mainstream kitchen and bath firms to not require much borrowing for working capital purposes. That feature alone can make this industry quite appealing for budding entrepreneurs.
Having a sufficient credit line in place is a must, however, to take advantage of vendor cash discounts. After all, a 2% discount for payment in 10 days, instead of the typical 30 days, translates into a 36% annualized return on investment. A good businessperson will always take advantage of that discount! Expansion can then be financed through retained earnings, internal cash flow, borrowing, price increases, or a combination of any of these options.
After cost of goods sold, personnel will be the biggest expense on a kitchen/bath design firm owner’s income statement. Unfortunately, from my perspective, too many owners become too busy with their every day workload to properly think about, plan, organize, and prepare for additional staffing.
As a result, having people perform to maximum productivity is seriously compromised. According to Jim Collins, author of From Good To Great, getting the right people on the bus, in the right seats, is one of the six major reasons why a company will vastly outperform its competitors. Indeed, his research concludes that if you get the right people in the right seats, there will not be a need to manage them. They will all be self-motivated.
To accomplish that personnel goal successfully in this industry, requires some key organizational tools. And perhaps the best way to present these tools is to consider the stages that a firm typically evolves from a startup to a mature organization with several branch locations. For simplicity purposes, let’s assume that the owner’s greatest skill and experience is in kitchen/bath remodeling design and sales with mid to upscale consumers.
Tool #1: Organization Charts For Different Stages of Development
The first personnel productivity tool is an Organization Chart which visibly represents the job titles and primary responsibilities of everyone in the company. It depicts the chain of command, and how each job position relates to the other, so the basic structure and development scope of the business can be understood. As a business evolves, the Organization Chart also chronicles the changes in the owner’s key responsibilities.
In a kitchen/bath startup (Stage 1 of business development), the owner serves as marketer, designer, salesperson, buyer, project manager, and chief bottle-washer. He does everything! Installation labor is subcontracted. Part-time or subcontract labor is used for such functions as bookkeeping, showroom reception, and sometimes kitchen planning/cabinet estimating. Such an organization can typically manage an income volume of approximately $500,000-$800,000, assuming the average sale consists of cabinetry, countertops, and installation.
In Stage 2, as the business grows, and the number of leads become a burden for the owner to follow up, the inclination will be to add another person who can also design and sell. Most owners who do so now get into trouble because they have not yet established the written support systems and staffed the permanent support positions necessary for the organization to function smoothly with multiple business generators. The confusion gets magnified, absent considerable training and managing by the owner, when the new hire follows their way of developing, closing, ordering, and producing a sale. This lack of operational consistency within a company can mystify and frustrate prospects, vendors, and subcontractors alike, leading to mistake-riddled or delayed projects, dissatisfied customers, and a tarnished company reputation.
Better that Stage 2 development becomes an evolution to what I call a “studio” business model where owners hire support staff to assume some of their specific duties. The Organization Chart for a Stage 2 operation would consist of the owner functioning as the senior design executive at the top with a team of the following (usually hired full-time in this order):
• Design Assistant – responsible for detailed drawings, cabinet estimating, resource library, showroom reception, and (sometimes) material selections
• Project Manager – material ordering, job scheduling, subcontractor coordination, and job production
• Office Manager – reception, bookkeeping, and office administration