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Diversifying
Remodelers are flush with money. Ideas for new businesses or diversifications are sprouting like mushrooms. At a recent meeting of 11 company owners, three were in varying stages of birthing totally new entities and one had pulled the plug on a venture that was creating too much hassle for too little return.
The new business babies included a software venture and two internet based businesses. All the remodelers viewed their remodeling businesses as the steady, stable base from which to venture out. In some cases the new venture was an arm of the existing firm. Just this week I am consulting with a remodeler who has leaped into a major addition to his business - one that will mean thousands of small jobs, a huge number of phone calls and the potential to make considerable money. It doesn't appear that he has spent much time considering the impact this major new venture will have on his existing business. So if you are thinking about adding a major diversification to your company, take a moment to answer these questions:
What is your goal in starting this division?
Here's that old "begin with the end in mind" issue. Why
are you doing this? What will the benefits be? What's the upside
potential -- and what's the possible downside to what you are doing?
How will you measure success? When will you pull the plug if you
don't reach your goals?
Will there be synergy between your current work and clientele
and the new work?
It's been said that every business can benefit from increasing,
not just market share, but share of customer. In other words, once
you have gained a client, why not sell more to them. They believe
in you and will be happy you are offering a greater menu of services.
There's another issue here. Don't add a middle class offering to
an upper class company - - or vice versa. You'll send mixed messages
into the marketplace. You don't expect to find a McDonald's in a
Nordstrom department store. There is a congruency of offering that
is important. You'd like the buyer of the new service to be able
and likely to buy from your base business.
What geographic area will you serve?
If your new offering includes the physical delivery of the product
or service, you'll want to define this practical aspect.
How will you staff the new division? Who will champion its
growth?
Are you going to overload your already overloaded existing
staff with additional work? Will they secretly hope the venture
will fail? Or will you give some sharp and enthusiastic individual
the helm and sell them on the opportunity they are receiving? Obviously
the latter choice is the way to go. Set goals, create a way to measure
and monitor and meet regularly with the new venture's champion.
How will current employees view the new diversification?
I have visited companies where the energy and enthusiasm that accompanies
the startup creates jealousy in the current staff. You'll need to
sell staff on the benefits the new business will bring. You'll also
need to be sure that no one feels slighted or neglected in the base
business.
How much do you intend to invest in this new entity? Where
will the funds come from?
Remember that many new companies fail due to lack of cash flow usually
resulting from the owner's inability to wait out a slower-than-anticipated
startup. Plan to set aside some extra funding to bridge that gap.
And don't forget to consult with your accountant and lawyer about
how best to handle the new venture.
How will you market the new service or product?
Hopefully you can get a fast start by marketing your new service
or product to your existing client base. Figure on 3-5 communications
to that base in order to land your message. Consider offering them
a special "deal." You want to be up-and-running quickly
and get that all important word-of- mouth circulating.
Have you created a solid business plan for the new venture?
Yes, I know you never even considered doing that for your current
business but now you have more to lose. How much will you have to
sell in the first year, second year? How will it get produced? What
will the overhead be? You'll definitely want to keep separate books
on the diversification so that it can be measured as a profit center.
In these busy times, no remodeler needs work that doesn't produce
a profit.
I know I sound like a Dutch uncle (aunt?) with all my cautions.
These are wonderful
times for remodelers. Don't blow them!
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Official Charity of 2008
Remodelers Advantage Inc.
535 Main Street, Suite 211
Laurel, MD 20707
ofc: 301-490-5620
fax: 301-498-6869
Info@RemodelersAdvantage.com