Contractor’s Corner: How to lose a lot of money - Apr 2019

By Dave Stafford

Sure, you can lose big at a casino, betting on the horses or the stock market. Many eschew those avenues and consider themselves conservative but bet their company’s future on a glittering new flooring concept that is ill-timed, unproven in their geographic area or beyond their expertise. Any new venture has some risk, so do your research.

ENTER AT YOUR OWN RISK
I fondly remember the sheer excitement of gearing up for a new business segment in our market area and thinking, “We’ll make a killing!” The potential seemed enormous, and the product unique. Between the manufacturer’s assurances and the slick brochures, we were convinced we had a winner, especially with limited geographic distribution. We put on the full-court press with our sales team and an expensive marketing introduction to designers, and there was a resounding thud!

One designer was especially eloquent in her critique, saying, “Yes, I know the product is virtually indestructible, but it is ugly, has a color range that is years out of date, has limited commercial appeal to me and might only work in a lower-class break room. You’re wasting my time.” This same sentiment was echoed by others responsible for large specification work. The only interest was from several facility managers interested in its utility value for (you guessed it) cafeteria and break room areas. It was a technical marvel but had limited appeal to drive sales volume.

A nearby commercial flooring dealer entered the floor leveling and polished concrete business to much sound and fury and with a big bill for the latest equipment. Rather than a direct sale to the regular commercial stable of clients, they found that their target customer was actually going to be other commercial dealers-as a subcontractor. General contractors did not want to hire them directly for floor prep work. However, these other commercial flooring dealers considered them to be direct competition, “So, let me understand this, you want me to hire you to prepare the substrate, level the floor, but you are also selling the same carpet tile and resilient tile, and will be bidding against me for projects?”

Demand for polished concrete in our conservative East Coast metro area was almost non-existent at the time. Marketing the specification to architects and designers was a failure, and so they set up a division to drive specs. They were also competing with lower-tier commercial designers. They confused everyone with such diverse marketing that their commercial business dried up, and they went bankrupt.

THERE ARE MISTAKES TO BE MADE
The learning curve in any new area can be substantial. You are going to make mistakes and learn expensive lessons whether that’s hiring a rookie installer, realizing different equipment is needed after an investment has been made or underestimating the total cost of pursuing a particular flooring segment.

A hardwood flooring refinisher decided to pursue gym floor maintenance and refinishing for high schools and colleges. He found that the size of most jobs meant that he needed extra personnel. As he was working on a large gym floor, he added a new crew member. The floor was sanded, prepped and then multiple coats of urethane applied. After the final gloss coat was applied, the new crew member decided to open the exterior doors “to speed up drying” and turned on a floor fan, promptly blowing in thousands of bugs and mosquitos across the wet finish! The result was an “orange peel” type of finish and meant the entire job had to be done from scratch. There is no substitute for training and hands-on experience. As one installer remarked, “You can re-stretch carpet or re-make a seam, but with a high-gloss urethane floor finish, even a spot repair is noticeable.”

Perhaps a whole different range of equipment is needed. We found this out when we had to buy a higher capacity vehicle just to transport product and supplies. Then there’s the issue of proper storage of those supplies for safety and fire code regulations; OSHA procedures and protocols may dictate a different location entirely. Normal loading of vehicles for transport to job sites will not be the same. Even warehouse forklifts may need to be modified.

Even though potentially profitable, a segment may not be worth the aggravation and the extra investment of thousands of dollars. If you’re lucky, you’ll find out the true cost before you embark on a long journey. While we were adept at using cementitious floor leveling products to correct substrate problems, I did not understand the critical degree of floor level and flatness required for a TV studio rehab: “The floor has got to be level; otherwise, video cameras will be sliding across the floor, and you can only imagine the resulting image projection.” We made minimal profit on the job because we had to sub out the laser leveling to an expert.

If there was ever a saying to take to heart, it would be, “Always forecast for capital needs and determine the effect on credit lines.” Many a promising venture has died because the existing business could not support the capital drain of supporting new people, inventory requirements and product turns; sometimes the final straw is the inability to collect receivables.

EGO MANAGEMENT AND SEGMENT RESULTS
“You don’t know what you don’t know,” and that’s why experience may be the best teacher of all. Time to find out whether those dreams and the long hours of meetings will pay off.

Plan your initial roll-out and do test marketing with a definite time for review. Everyone on the team should be involved in setting a realistic horizon-short enough to deal with problems but long enough to evaluate your company’s expertise or lack thereof.

And then there’s the ego factor. The reality is that your future and the survival of a company is in direct proportion to the risks taken and positive results. No one wants to be associated with failure. One executive promised that the investment of several hundred thousand dollars for a new branch location and personnel would guarantee many times that in sales within a year. After nine months with virtually no sales, he and several associates were summarily fired, and the expensive office location closed. Some still believe the root cause was expansion for the sake of a visual growth rather than necessity.

Likewise, overstaying the entry in a new segment where poor sales volume, delivery problems and potential liability are evident is brutal. I kept thinking we would turn the corner; the truth is, the plug should have been pulled several months earlier. The wake-up call was low sales potential coupled with a high aggravation factor and internal operations cost. I should have seen it earlier. Shame on me.

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