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Bettering Your Bottom Line { Ken Peterson, CKD, LPBC } Building a Recipe For Durable Success To build market share and revenue growth year after year, kitchen and bath dealers must consistently follow a carefully developed recipe for durable success. N ow 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 frm 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 specifc, methodical and consistent. Now design frm owners may very well be specifc in developing their foor 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 en- during 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 consistent ly formed and tasty cookies. Repetitions hone skills, processes, efciencies 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 frm 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 specifcity 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 feld: Develop 2,200-2,500-sq.ft. showrooms that are easily accessible, visible to target customers and designed as educational 24 | Kitchen & Bath Design News September 2013 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 staf members. to be 1.76 (i.e. 43% gross proft). 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 installat ion subcont ractors – based upon detailed personnel specifcations, furnishing on-the-jobtraining programs, written job descriptions and career paths while inculcating them with core values and corporate culture. Usi ng a n Operat ions Manual and/or industry educational resources, train all sales designers to follow a written sales process designed around their prospects' purchasing decision needs. "A solid SMaC recipe is an operating methodology for turning strategic concepts into reality." Target steady 15-20% maximum revenue growth annually so as to preserve superior customer service, develop staf and management systems in support of that growth and maintain necessary gross proft margins. Developed during the annual budget preparation, have the company price formula equal the gross proft percentage necessary to cover the overhead, desired net profit and probable 2% proft erosion on projects. So, if one's overhead (including owner's market-rate salary), is 31% of projected revenue, and the desired net proft is 10%, then the multiplier over all costs would need 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 staf to close those gaps. Belong to a buying group to leverage/reduce mater ia l cost s, t hereby increasing gross profit margins on projects; use rebates to fnance Emergency/Growth Fund or owner's retirement. Engage a boa rd of directors and/or industryspecifc 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 fxed operating expenses; use this fund exclusively to fnance major growth/acquisition strategies or survival strategies during a recession. Collins points out that SMaC recipes among great compa n ies were ra rely 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 difcult than implementing change is fguring 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 frm. 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 Proft." Peterson can be reached at 1-800-991-1711 or kpeterson@sendesign.com. Read past columns and features and send us your comments about this article and others by logging onto our Web site: www.ForResidentialPros.com