Kitchen & Bath Design News

MAR 2015

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18 | Kitchen & Bath Design News | March 2015 Bettering Your Bottom Line { Ken Peterson, CKD, LPBC } I recently conducted con- versations with kitchen/ bath dealers about their companies' fnancial perfor- mances in 2014 and their forecasts for 2015. A few were fat last year. Many enjoyed revenue growth in the 8-12% range. But there was also a fair-sized contingent that reported historic years with growth reaching the 35%+ level. While I congratulated the performers on their out- standing results, I was also concerned for their welfare going forward. Why? Because they were not in control of their operations but simply riding the wave of a positive economic sea. They were fe- verishly manning the oars of the boat, not positioned at the helm, watching the direction of the wind, then smoothly and confdently guiding the vessel toward its pre-deter- mined destination. I heard reports of staying at the ofce late night after night to get all of the orders in, trying to find and hire quality help, training newbies on the fy, and getting so ex- hausted that they would take spur-of-the-moment quickie vacations. Moreover, they readily acknowledged being "too busy" to capitalize on educational events or new technology introductions. THE 20-MILE MARCH These narratives of incred- ible annual revenue growth provoked two immediate thoughts: (1) the U.S. fnan- cial system's meltdown was only seven years ago and (2) the financial system is still vulnerable, according to multiple experts. So how can a kitchen/bath design frm owner best steer his or her business during an historic rise in revenue? In my judgment, the an- swer is injecting a strong dose of discipline throughout your operation. It's something that has always been lacking in this industry, and has held back not only durable dealer growth but also institutional growth. Indeed, in his book Great By Choice , professor and celebrated author Jim Collins makes a strong case for managing a business with "fanatical discipline." Having researched com- panies that out-performed their competition over long periods of tumultuous, uncertain times, Collins advocates a principle com- mon to these overachievers: the "20-Mile March." This principle requires hitting specifed performance mark- ers with great consistency for many years. It also demands two kinds of discomfort. The frst is delivering high performance in difficult times. And the second is holding back your business, using self-imposed restraints, in good times like 2014. REARVIEW MIRROR When a business owner ex- periences incredible growth, it's critically important to re- fect upon that performance and consider what major fac- tors propelled the growth. Not one of the overachiev- ers interviewed could really point to any one button they pushed. Each was graced with a strong local market in an improving national economy. Yet Collins writes about the most successfully durable companies not allowing exter- nal factors or pressures, like a positive business climate or an economic slowdown, to defne them or their annual performances. The only way to get to where a company wants to be in, say, fve years, is to make steady incremental progress year by year: achieve 20% – and no more – of the way there every single year. In attaining 35%+ growth levels in 2014, what could these kitchen/bath dealers lose in the process? According to Collins' extensive research, absent the application of the "20-Mile March" principle, key competitor companies lost a culture of superior ser- vice, a modicum of paranoia, spending restraints that un - dermine the preservation of proftability, and a resilience to calamity in an unexpected downturn. Indeed, many went out of business not too long after one or two incredibly good years. Lest we forget, after several blockbuster years of revenue growth, legions of our fellow kitchen/bath dealers became immedi- ately vulnerable with the unexpected 2007 housing in- dustry downturn when their builder customers couldn't pay their bills. For cabinet manufacturers, these cov- eted dealer accounts seemed to evaporate, leaving behind many millions of dollars to be written of. I suspect that clients of these 2014 kitchen/bath industry overachievers expe- rienced some hiccups in the product ordering, servicing, workmanship quality and timely completion of their projects. No doubt these dealers may have lost some shine on their reputations, which could hurt growth results over the next couple of years – unless, of course, quick steps are undertaken to adopt a diferent manage- ment mindset, shore up the infrastructure and sustain a culture of continuously im- proving client service. GETTING STARTED A kitchen/bath company can always adopt the 20- Mile March discipline even if it hasn't had such disci- pline before in its history. It starts with owners carving out time to get out of work- ing in their businesses and spending regimented time each week working on them. Of the seven charac- teristics of a good 20-Mile March, in my view, the two most important for kitchen/ bath dealers are (1) clear per- formance markers and (2) a proper time frame, say 3-5 years, so it's long enough to manage but short enough to have teeth. A SEN/ KBDN post-reces- sion survey revealed that 83% of the 200+ dealer re- spondents never prepared an annual budget. Yet the single, most signifcant per- formance marker that a small businessperson should have at his disposal is a thorough budget to run his operation. Developed with sufficient detail, and over a 3-year pe- riod, it empowers owners to properly plan for controlled growth, think strategically what additional support staf or capital equipment expen- ditures will be needed and when, know precisely what their company's gross proft margin must be when pricing jobs, and how much net proft will be made each year to be parked in a liquid Emergency Investment Portfolio. That emergency fund needs to accumulate 12 months of fxed expenses to insulate the company from recessionary shocks as well as provide capital for poten- tial growth opportunities. With a properly con- ceived annual budget, at the end of each month, owners can monitor the company's actual performance in reve- nue, gross proft percentage, expenses and net proft com- pared to budget. It puts the owner solidly in control of his business, steering it to- wards the predetermined fnancial goals. Whether you experienced 35% growth or not in 2014, now is the time to adopt a mindset of fanatical disci- pline and gain full control of your business before the next downturn. By adhering to the 20-Mile March man- agement principle, no matter what challenges or external shocks, you prove to yourself – and your team – that per- formance is not determined by your conditions. It's large- ly determined by your own actions. Ken Peterson, CKD, LPBC, is president of the Chapel Hill, NC-based SEN Design Group. For more info about this topic, please contact Peterson at 1-800-991-1711 or kpeterson@sendesign.com. Peterson also welcomes com- ments, questions or concerns. The Case for Fanatical Discipline Kitchen and bath frms can improve their long-term success by injecting a strong dose of discipline throughout their operations. Read past columns and features and send us your comments about this article and others by logging onto our Web site: www.ForResidentialPros.com "The only way for a company to get to where it wants to be in, say, fve years, is to make steady incremental progress year by year."

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