Getting into business has grown in complexity over the past few decades. Unnecessarily so, in my opinion. As society has gone through upheavals of various sorts, governments have assumed a larger and larger role in our day-to-day lives, which in turn has created many and varied obstacles to being in business. Still, having your own business is a goal many strive for.
The guys (sorry, not PC) that is to say, businesses who have been around for a while have learned to navigate these obstacles as they were implemented and took them in small doses. With newer startups having to deal with the whole package out of the gate, so to speak, the difficulty factor grows.
Setting a Baseline
Once in business, if you have been successful in creating one that survives those “magic” three years and having jumped through all the hurdles created by the municipal, state and federal authorities, you ought to have a smooth-running shop (it says so, right here in the fine print). Once a shop has defined its business model, the imperative then becomes profitability, followed closely by the one thing that can destroy that business: growth. Expanding a small shop, depending upon what type of work is done (residential service, repair/remodel, commercial service, new construction, etc.) usually follows a predictable path, although it is, by no means, a certain one.
In this column, I’ve covered the problems, vagaries and pitfalls of expanding beyond the original man or men who start a shop from the ground up. For the sake of discussion, let us assume (I know…I know…) that a business has passed the three-year mark and has expanded beyond initial personnel successfully. Things are going in the right direction and the shop has established itself in the marketplace.
What’s next?
With the business firmly established, work, cashflow and personnel all somewhere on a sine curve (I realize that it is never that simple, but we are assuming, right?), the small shop must decide where it wants to go. Some stay in the niche they have created, expanding within that area of expertise—adding trucks/people but keeping the same type of work, just taking a bigger and bigger slice of the market in any given area. Others are looking to expand into other areas of the industry, for example, going from residential service/remodel to new residential construction, commercial remodel, etc.
The problem (?) at this juncture is where to go and how to make the move. If it is a service shop, how does it move to larger construction? A small shop that does light commercial work like strip malls, with a bit of service, for example, wants to move into large commercial industrial projects… but can it?
Expanding
Every situation and every business are both unique and the same, simultaneously. What do I mean? It does not matter what level of expansion a business undertakes, there are certain considerations that must be addressed. Once the decision has been made to expand into a different phase of our industry, an owner or manager needs to understand all the things the move entails.
First would be capital. Expanding beyond your existing business model will require cash. How much would depend upon how big a move you are making. Going from service/repair/remodel to custom homes and small, multi-family stuff won’t require as big an investment as taking on a tract of homes or an apartment complex. The same shop, bidding on an industrial facility, commercial high rise, hospital (if qualified) or a hotel, needs large cash reserves, and…
Second, people. Does the shop have enough qualified people to do the project? In today’s market, hiring new people of the appropriate skill level to either perform the project or to take over for the people who would be moving over to that project is difficult, if not impossible.
Third is a thing called “bondability” or financial liquidity. Many municipal projects of size, and others, require all subcontractors to be bonded. Getting a bonding company to issue a bond for your shop, which is not as easy as buying regular insurance. Your business track record as well as your cash flow and work history will all be scrutinized by the prospective bonding company and, if found wanting, will be rejected. You can go through all the work of finding a project you want to bid on, then bidding the project, getting awarded the job only to be rejected by the bonding company. A very frustrating problem.
Moving up
Once the decision has been made to expand the business and all bases have been covered or at least considered, actually getting the work comes into play. As an unknown, or at least untested, player in the market you are moving into, the business (you) will be dealing with people that you do not know and who do not know you, your shop, its reputation or work. With no resume to fall back on, getting on a bid list for a project can be very difficult (Dodge Reports, etc. is an entirely different thing, but that’s a column for another day). Making the appropriate contacts beforehand is one way to smooth out the transition. No matter that we have become a digital society, personal contact is still king in our business.
Expanding the company’s reach into the larger market can be both exciting, profitable and at the same time perilous for businesses, especially in our industry. There is no formula for this type of expansion, each shop that desires to make that move does so at its own peril. The best advice is to consider everything you need to do before you make the move. Control the things you can, mitigate the things you can’t. It is easy to advise, much harder to actually take the steps and to put your business at risk—but you took that risk when you got into business, didn’t you?
The Brooklyn, N.Y.-born author is a retired third generation master plumber. He founded Sunflower Plumbing & Heating in Shirley, N.Y., in 1975 and A Professional Commercial Plumbing Inc. in Phoenix in 1980. He holds residential, commercial, industrial and solar plumbing licenses and is certified in welding, clean rooms, polypropylene gas fusion and medical gas piping. He can be reached at [email protected].