Building a Marketing Juggernaut
Clyde Wilson, who owns a 14-year-old landscaping business in Bracey, Va., didn't know much about Aquascape Designs Inc. until last January, when his wife insisted he attend a two-day seminar in a nearby city. Her reason was straightforward: She was scared. Their company had lost so much money in 2002 that they'd had to borrow $65,000 to get through the winter. They clearly needed to do something different, and Aquascape, which designs and sells pond-building supplies, was promoting its seminar as a chance for landscapers to learn how to succeed in the pond business. Whether or not pond-building proved to be their salvation, Mrs. Wilson hoped her husband would pick up some profitable ideas.
It was on the second day of the seminar that Wilson had his revelation. It came in the form of a simple formula he could use to figure out how long it would take his business to reach the breakeven point in any given year (see "Are You on Track to Break Even?" page 67). As soon as he got home, Wilson and his wife plugged in their numbers and discovered that they would need 540 days to break even in 2003. "Omigod," Wilson thought, "we're going out of business." But the formula also gave him hope--by making him more aware of his gross margins. Clearly, his prices were too low. A $300 lawn-cutting contract, for example, should have been $400; a $50 contract for delivering mulch should have been $150. So he raised his rates, and most customers paid them without complaint. In July, Wilson's wife sent him back to school, this time to attend Aquascape's third annual Pond College in St. Charles, Ill. By then, he'd improved his overall gross margin from 6% to 35% and was on track to break even by August 10. At the Pond College, he lost no time in seeking out Greg Wittstock, Aquascape's 33-year-old founder, owner, and CEO. Wilson just wanted to thank the man. "If I hadn't gone to that seminar," Wilson told Wittstock, "I wouldn't be here today. I'd be out looking for a job."
Chances are you're not familiar with the pond industry. You may not even know it exists. But exist it does, with sales of $1.4 billion a year and growing, and its driving force is the company Wittstock started in 1990 when he was still an undergraduate at Ohio State University. Today, Aquascape has 130 employees, 35,000 customers, and $44 million in annual sales. It has been on the Inc. 500 list three times, and its ponds have been installed all over the United States and Canada, as well as in parts of Europe and South America. Most important, it has built an army of loyal customers--mainly independent landscape contractors and pond-supply distributors--who gather every July at a resort near the company's headquarters in Batavia, Ill., to learn, network, and celebrate the joy of ponds. This year's event was a weeklong extravaganza called Pond-erosa--not to be confused with Pondapalooza, the industry trade show that took place two weeks later in Atlanta--and included both the Pond College and the 11th annual Parade of Ponds.
Ponds are, in fact, more than a business to the Aquascape crowd. They are a passion and a calling, and no one is more passionate about them than Wittstock, who is also known as the Pond Guy--a name he has trademarked--and who is an intense, athletic, notoriously volatile, utterly ingenuous former fullback on his state champion high school football team. "My philosophy is that everyone wants a pond," he says. "A lot of people just don't know it yet."
That's a situation he intends to rectify. One of his current projects involves placing pond kiosks in malls around the country. He displayed a prototype at this year's Pond College. "How 'bout that sucker, huh?" he asked the assembled throng, looking and sounding more like an overgrown Bart Simpson than the CEO of a company that has revolutionized its industry. "Do you think we can take ponds mainstream with this? We're going to educate the masses, man! That's what's so awesomely cool about malls!"
By and large, Wittstock's employees share his enthusiasm, and he is venerated by his customers. But, as devoted as his followers are, Wittstock is an object of fear and loathing in the rest of the industry, where people refer to him as the Pond Nazi, call his company "the Dark Side," and regard the Aquascape empire as a cult-like phenomenon. "He's very egotistical, extremely aggressive, and incredibly intolerant of any views that deviate from his own," says one of his industry adversaries. "He looks at business as war. In his own company, he's a tyrant, yet he has this loyal following. That's the cult aspect." Wittstock is even shunned by his father, Gary, who used to be his partner and is now his competitor.
Some of the hostility is related to Aquascape's controversial pond-building methodology, which aims to create a natural eco-system that can keep water clear without the use of chemicals or ultraviolet light. When Wittstock began marketing the system aggressively in the mid-1990s, he raised hackles in the industry because his approach broke many of the rules of conventional pond-building. Wittstock responded by suggesting that promoters of other pond-building techniques were, at best, morons who didn't know what they were doing or, at worst, charlatans who were ripping off their customers. That didn't go over well in the small, collegial world of ponds, where people hold deep convictions about, for example, whether a Japanese koi fish prefers a gravel or cement bottom.
Fear is also a factor--especially now that Aquascape has moved beyond its original niche of contractor-built ponds and begun targeting the do-it-yourselfers who constitute more than 85% of the market. On the surface, the two market segments are very different, at least from a pricing standpoint. Contractor-built ponds start at about $3,500 for a small backyard job and can run to more than $500,000 for a two-acre commercial project with stepped waterfalls cascading into pools. Do-it-yourself pond kits, on the other hand, sell for as little as $200. But no one is underestimating Wittstock's ability to do for the latter market what he's done for the former. "Aquascape has turned itself into a marketing juggernaut," says Steve Stroupe, an industry consultant and independent sales rep, as well as one of the few people in the pond world who has maintained personal and business relations with the various factions. "Greg is creating such a hypercompetitive environment that only the strongest will survive."
The intriguing part is how he's done it. Virtually all of Aquascape's marketing involves teaching other people--and other companies--how to make money in the pond businesss. Indeed, the entire organization is set up to provide customers with whatever information, education, products, marketing materials, and technical support they need to have successful businesses of their own. Granted, Wittstock's motives are hardly altruistic--like any supplier, Aquascape stands to be a prime beneficiary of its customers' success--but the company goes to extraordinary lengths to ensure that the contractors, garden centers, and wholesalers it does business with earn a profit on ponds.
"You want to know what this is?" Wittstock asked his audience at the Pond College. "We're a franchise business without the franchise fee." More to the point, Aquascape is a franchise business without a franchise agreement. Contractors are under no legal obligation to use the Aquascape pond-building materials on which the company makes its money. While Aquascape does charge for its seminars, magazines, books, videos, and marketing materials, they are not a major profit source. But what's to stop a contractor from taking advantage of the training programs and then buying less expensive pond supplies from one of Aquascape's competitors? The answer is, nothing--or at least nothing in the form of a binding contract. Some pond-builders do, in fact, go to the seminars, buy the books and videos, use the marketing materials, and purchase the big-ticket items elsewhere. Those people are a distinct minority, however, and their defections have had no discernible impact on Aquascape's meteoric growth.
Clearly, Wittstock has figured out something about marketing in the information age, and you don't have to be in the pond business to wonder what it is.
"If you want to keep motivated employees around," Wittstock tells his seminar audience, "there's no better way than to teach them the Financials.
On a slow winter day in Raleigh, N.C., about 20 landscape contractors have gathered in a hotel conference room for a two-day course in pond-building. This particular session focuses on the importance of doing breakeven analysis and sharing the information with employees. Leading the seminar is Ed Beaulieu (pronounced buh-LOO), a zoologist turned pond-builder who is Aquascape's vice president of construction. A lean and laid-back fellow with a shaved head, a mustache, and a goatee, he takes the group through the process of calculating breakeven and explains the energizing effect that knowledge of the numbers has had on the members of his work crew.
Greg Wittstock sits quietly in the back row, listening, watching. He used to run these sessions himself, although they were different back then, focusing more on pond construction and less on the business. He did the first tour in 1996, hitting 19 cities around the country. The next year, he upped the total to 43 cities and, the year after, to 57. He was on the road for three straight months in 1998, secretly loving it while complaining mightily to his fiancée, Carla, who wanted him to stop. Once they were married, Wittstock turned the tours over to other people in the company. But he still shows up occasionally, and you can see him wrestling with the urge to jump back in.
Now, in Raleigh, he gets out of his chair and starts walking around. When he sits down again, he's in the first row. As Beaulieu finishes his presentation, Wittstock decides to challenge the audience. "I want to know how you're going to apply all this," he says. "How many of you are going to go back and share this with the people who work for you?" Three or four hands go up. Beaulieu points out that opening the books doesn't mean you have to talk about individual salaries with employees. "Yes, you can," Wittstock cuts in. "You can ask them, 'How much do you want to make?' $40,000 a year? No problem. We just have to do another $300,000 in sales....And maybe they'll start telling you ideas: 'Here's how we can cut 2% of expenses." His face is lit up. He stabs the air with his finger. "And guess what? Kaboom! They're thinking like owners!"
All eyes are riveted to him. His body is tense. He holds out his hand, palm up, fingers raised and taut, as if he's literally grabbing the attention of the people in the room. "Think about the questions you have on this...because we've done it, man! I've seen the power that it's had with our employees!"
Wittstock sits back down, and Beaulieu begins to talk about how he uses the breakeven formula with his crew. "Tell them about hiring," Wittstock says. Beaulieu explains how he and his crew use the formula to decide whether to hire additional people. "And then they vote!" says Wittstock. "The employees vote!" They can make the decision, Beaulieu says, because they know how many more ponds they'll have to build to cover the cost of an extra person.
"And what happened before?" Wittstock asks, rising from his chair again. "Every employee said, 'We're overworked. Hire somebody else.' Does hiring someone else affect their salary? It sure does, because there's only so much to go around. But did they think that way? So now, with this, do you get better buy-in? Are they complaining less? Is that valuable to you? Are motivated employees tough to find? If you want to keep motivated employees around, there's no better way than to teach them the financials. Because all of sudden you're not a crook! Everybody's part of the same team!"
Wittstock was not always so passionate about the numbers. He started out as a contractor, after all, and--like most contractors--he let someone else handle the finances. Then, in 2000, he attended a seminar given by Charles Vander Kooi, a Colorado-based consultant to the landscape industry, who spoke about the mistakes people make in estimating their costs and the trouble they can get into as a result. He gave the example of a snowplowing company charging $50 for a job that actually cost the business $60 by the time the overhead expenses were factored in.
Vander Kooi's talk struck a chord with Wittstock. He kicked the idea around with other people in the company, and eventually they came up with their own approach to breakeven analysis, one simple enough to be easily grasped by the pond-building crew. Among other things, the system allowed the employees to figure out how many ponds they needed to build each week to hit their breakeven point by a given date. After breakeven a portion of every sales dollar goes to net profit, and Wittstock agreed to split that portion between the company and the crew members, meaning that each employee stood to benefit financially by reaching breakeven as soon as possible.
Overnight, the psychology of the crew was transformed. Employees began taking better care of the equipment, and they made sure they had everything they needed when they showed up at a job site. Meanwhile, morale soared. Brian Helfrich, a foreman, admits that he'd been thinking about leaving Aquascape to start his own pond-building business until he got the financial message. "This is the one thing that completely changed the way I look at Aquascape and every other company," he says.
Yet, as effective as the breakeven formula was, Wittstock and Beaulieu did not think about including it in the seminar curriculum until last year, after Aquascape's largest customer got into trouble paying its bills. Beaulieu had tried to help the customer straighten out its finances and quickly realized that it was barely breaking even on the sale of ponds, despite having an overall gross margin of more than 40%. Evidently the owner, though a good salesman, had no idea how to make sure his company earned a profit.
That discovery was a wake-up call for Wittstock, Beaulieu, and the other people involved in customer training and education. If their best customer--a company they'd held up as a role model--didn't know how to make money, what about the rest of their market? They decided to expand the seminar from one day to two and to include basic business training, but the trainers' first attempt at teaching the financials was a bust, mainly because they tried to do too much. Afterward, they agreed that they had to simplify the financial information and focus on the breakeven formula. The simplified program, introduced at the next seminar, was an instant success. Asked to name his favorite part of the program, one contractor wrote on a comment card: "Financials. The breakeven concept. Wow! My eyes are open." And his least favorite? "Financials. Thinking about the amount of lost time and money."
Wittstock likes to explain Aquascape's success by saying, "We're pond guys, not engineers." The comment is a not-so-subtle swipe at his father, an engineer, but it contains more than a kernel of truth. To Wittstock, the products are secondary, a means to an end. The pond's the thing, and Aquascape's hallmark has been its ability to simplify every aspect of the business--from financial management to construction. The simpler Wittstock can make the process, the easier it will be for people to follow the instructions, meaning more ponds will get built.
Wittstock had already done a lot of simplifying by the time he rolled out his pond-building system in the mid-1990s. With his approach, he claimed, a contractor could build in one day a pond that others took three weeks to install. At the heart of his system--which hasn't changed much since then--is what he calls the 20/20 rule. Any pond of any size, he says, can be constructed with the same 20 components assembled in the same 20 steps. The components include everything from the stones around the waterfall to the glue for attaching the flexible plastic pipe to the filter. The steps run from "Mark pond area" to "Get paid." It's all there, and always the same. To be sure, the size of the components will vary from pond to pond; different ponds will have different designs, based on the geography of the space and the desires of the pond owner; and complex ponds will take more time to build than simple ones. But the process doesn't change, Wittstock says, nor do the types of products needed.
The 20/20 rule was one of the most radical of Aquascape's innovations. Critics charged that Wittstock was cheapening the art of pond-building, turning it into an assembly-line, cookie-cutter process, and sacrificing quality for profits. He strenuously denied that his system compromised quality. On the contrary, he said, ponds built professionally, according to Aquascape's principles, using high-quality materials, were superior to others--more natural-looking, more aesthetically pleasing, more durable, easier to maintain, better for the environment.
He didn't disagree, however, that his approach was more profitable, or that it was assembly-line. In effect, he'd done for ponds what Ray Kroc had done for hamburgers and Henry Ford for cars. But Wittstock insisted that, by systematizing pond construction, Aquascape allowed the pond-builder both to make more money and to be more creative. The artistry had to do with the pond's design and the quality of its execution, not with the steps involved in carrying it out.
For water-gardening veterans, it was a lot to swallow, especially coming from a brash 25-year-old, but Wittstock knew ponds. He'd been making them since he was 12. The first one had been a hole in the ground behind his family's home in Wheaton, Ill., west of Chicago. That pond was soon replaced by a more elaborate concrete one that he built with his father. As the years went by, the two of them continued to work on the pond, redoing it every summer, experimenting with filtration, pumps, and construction techniques until finally, in 1990, they got it just about right.
That summer, Wittstock also began thinking about branching out. He had recently finished his sophomore year at Ohio State and had a summer job at a subsidiary of Union Carbide, where his father was an engineer. One afternoon, he says, he was driving home, ruminating about how miserable he was in his job and wondering what else he might do, when a thought popped into his head: What about starting a pond-building business? Everyone who saw the Wittstocks' pond wanted one--the mailman, the UPS guy, the neighbors. He told his parents about his plan. "He said, 'No one builds ponds like me. All I need is a wheelbarrow, a shovel, and a strong back," says his mother, Lauri. "And he had a name, too. He wanted to call it Aquascape Designs." For Christmas, his parents gave him the wheelbarrow and the shovel.
Wittstock went into business the following summer, marketing his services by placing classified ads in newspapers and leaving business cards at rock yards. He also wrote a letter to the gardening editor of the Chicago Tribune. The response came a year later, in the summer of '92, when one of the newspaper's freelance writers called. By then, he'd built 17 ponds and had a small backlog of orders, but he was eager for publicity. The article appeared on the front page of the Tribune's Tempo section on Sunday, August 2--and Wittstock's telephone started ringing. All told, the article wound up generating orders for 81 ponds. Suddenly he was booked for the rest of the season and into the following year.
Wittstock could no longer handle the business alone. He was building ponds by day and making sales calls, lining up pond parts, and doing other chores by night. As it happened, his father, Gary Wittstock, was available to help. He'd left Union Carbide by then and started his own engineering consulting business, which wasn't doing well. In September, he began working at Aquascape.
Exactly who did what is a matter of dispute nowadays. It appears that Gary worked primarily on sales, administration, and engineering, while Greg focused on pond-building. He began looking for ways to reduce the construction time--by having all the parts on-site at the start of a job, for example, or by laying the pipe before digging the pond, so that the dirt from the hole had to be shoveled only once, not twice. Out of such efficiencies came the 20/20 rule and the one-day pond-building methodology. He also hired his first foreman to work with his crew and build ponds without him.
But it wasn't until the fall of '93, he says, that he began to see the real potential of the business. His mother--an English teacher turned corporate training consultant--urged him to speak to a former colleague of hers, who was working for Arthur Andersen in Columbus, Ohio, where Greg was still finishing up his college degree. The two began talking about Aquascape's strengths and quickly zeroed in on Wittstock's homegrown, hands-on knowledge of pond-building. The consultant encouraged him to expand his horizons, to think about reaching the masses. Franchising was an obvious option. Wittstock tried to set up a franchised unit in Columbus, but after six months of negotiating, the deal fell through. Disappointed and frustrated, he decided to forget about franchising and focus on the booming business in Chicago.
"The back-order policy at Aquascape is simple: There will be no back orders. If one occurs, the flag in front of the building is lowered to half-staff."
But he didn't stop thinking about the masses, and one day in 1994, he says, the answer came to him. So what if he couldn't sell his knowledge by franchising? Why not just give it away? Through newsletters and catalogs, he'd teach landscapers what he knew and sell them the products they needed to do it on their own.
From that epiphany, an entirely new Aquascape evolved, but it took a couple of years. Complicating the transition was the increasingly rancorous relationship between Wittstock and his father, who had become his 50-50 partner in April 1993. At the time, it had seemed reasonable to divide the equity between them. The two had been making ponds together for more than 10 years. In the past, moreover, they had gotten along well. "I never had a fight with my dad growing up," says Greg. "Here, we couldn't talk without fighting."
On one level, it was a clash of personalities. They were polar opposites. "Gary is very detail-oriented," says Lauri Wittstock. "Greg is an entrepreneur." Of course, every business needs a combination of those traits, and the people who have them don't necessarily wind up driving each other crazy, but--as time went along--Gary and Greg were increasingly at each other's throats. "He's an engineer, and he was always over-engineering everything," says Greg. "My deal is KISS--Keep it simple, stupid....Ed [Beaulieu] and I were running construction back then. We'd design a filter with one pad, and my dad would put in two, even though it made the pond harder to maintain and had no benefits. It was like that all the time."
"We built the business together in my opinion," says Gary. "He was the hard-working installer, and I was the engineer that engineered the system. The fighting was because of control. Greg wanted to run everything."
Inevitably, the conflicts had repercussions outside the company. "I was traveling a lot, and when I came back, each of them would tell me his side of the latest fight," says Lauri, who generally sided with her son. "They both advanced the business. Gary brought maturity, and Greg brought creativity. But the business was always Greg's. We were just parents supporting a kid in his hobby, which Gary would never admit."
The situation came to a head in 1996. By then, Lauri and Gary were getting divorced, largely because of the battle for control of the company. "I just couldn't see my husband doing this to my son," says Lauri. "We really had a picture-perfect family, and it all came apart." Gary, for his part, was so upset about the divorce that he withdrew from the day-to-day operations of the company. Eventually, however, he decided he wanted to come back, much to the chagrin of Greg, who moved to end their partnership. Greg says that he offered his father seven different buyout formulas, including one whereby Gary would get 3% of Aquascape's sales for 15 years. In 2002, that would have amounted to almost $940,000--more than 22% of the company's net pretax profit. According to Greg, Gary dismissed the offer, saying, "3% of nothing is nothing, and if you're running this business, it will be nothing."
Gary says he does not recall getting such an offer or making such a comment, but he concedes that Greg proposed giving him "a large sum of money payable over many, many years" on condition that he stay away from the business. Gary rejected the offer. "I didn't want to leave," he says. "I was very content working with Greg."
"I just wanted my own career back," Greg says, "and I was willing to give away the farm to get it. It had nothing to do with money, obviously, or I wouldn't have offered him that deal. In the end, we had to go to arbitration. I bought him out for $184,000. He left and started his own business. He was my first competitor."
Gary's company, founded in April 1997, was called Pond Supplies of America and was based in Yorkville, Ill., about 20 miles from Aquascape's headquarters in Batavia. While PSA did reasonably well, Aquascape took off like a rocket. In 1995, Gary's last year in the office, it had done $800,000 in sales. The next year, sales more than doubled, to $1.8 million. In 1997, they doubled again, to $4 million, and they kept right on climbing from there. By 2002, sales had reached $31 million, an increase of 16% over the year before. That was respectable enough, but it paled alongside the surge in net pretax income to $4.2 million (13.3% of sales) from $1.6 million (5.9% of sales) in 2001--a leap of 163%. This year, Aquascape will do between $43 million and $45 million in sales, thanks partly to an acquisition.
That growth has come in the face of ever-increasing competition. PSA's sales are now $6.8 million, according to Gary, and 11 other direct competitors have entered the picture, all offering products similar to Aquascape's but at lower prices. Then there are the many companies that offer different pond-building approaches altogether, mainly for the do-it-yourself market.
Some of Aquascape's remarkable growth can be explained by traditional marketing techniques--and Greg Wittstock's willingness to invest in them. The catalog is a good example. Aquascape now sends out 3.2 million catalogs a year in nine different mailings. None of its competitors do more than two. Still, the catalogs don't explain the most tantalizing part of Aquascape's success, namely, the willingness of old customers to pay a premium for sticking with the company. To understand that, you have to look at other factors--one of which is Aquascape's in-house pond-building division, headed by Ed Beaulieu. Up until 1995, it was virtually the whole company, but as Wittstock transformed Aquascape from a pond-builder into a designer and marketer of pond-building equipment, the role of the construction team changed. It became Aquascape's research-and-development unit, coming up with new products, testing them in the field, experimenting with different types of jobs, and developing the marketing and management techniques that other contractors could use to build their own businesses and motivate their employees.
In principle, the construction division--which builds ponds only in the Chicago area--competes with other local contractors, but it also refers work to those that become Aquascape customers, and it regularly takes on lower-margin jobs to acquire experience and learn lessons that it can then pass on to other landscapers around the country. Moreover, by operating successfully in a competitive market, the team gives Aquascape a tremendous marketing advantage: Customers know its products have been field-tested by one of the best pond contractors around. "That gives me a lot of confidence," says John Russell, the CEO of Russell Water Gardens in Redmond, Wash. "I know that whatever I buy from Aquascape is going to work." Meanwhile, Aquascape is in the unusual position of having an R&D division that earns a profit.
Another factor is Aquascape's back-order policy. It's very simple: There will be no back orders on any product the company carries. If a back order occurs, the flag in front of the building is lowered to half-staff. This is an expensive policy. It means the warehouse is perpetually overstocked. "I'm willing to err on that side," says Wittstock. "It's about how ponds sell. When a landscaper gets a job, he needs the equipment right away, or he'll have guys sitting around for days. That's also why we double-check parts going out of our warehouse. If one $2 plumbing fitting is missing, you can't hook up a pump. Someone has to go to Home Depot. A one-day job becomes a two-day job, and you cut your profitability in half. Instead of making $2,500 per day, you're making $1,250 per day."
The back-order policy gives Aquascape another huge marketing advantage. "Other companies just can't match their service," says Tom Smith, owner of Garden State Koi, based in Warwick, N.Y., who gave up lucrative but competing product lines to become an Aquascape distributor. "Their fill rate [for orders] is something like 99.5%. Can you imagine getting that kind of fill rate in this industry? If I order from anybody else, I'm lucky to get 50%."
"It's a big part of their success," says Steve Stroupe, the independent sales rep. "Any competing vendor who doesn't understand the power of their no-back-order policy is going to get bloodied."
The same could be said of Aquascape's phenomenal rate of innovation. In the first six months of this year, the company introduced, among other things, a "pondless" waterfall, a new line of pumps, a kit to help contractors empty ponds for cleanouts, a bulk fish-food dispenser, a customer rewards program, seven new videos, and two new books, including The Pond Guy on Marketing, in which Wittstock reveals his marketing secrets. "Aquascape innovates so fast that other guys can't keep up," says Tom Smith, the distributor. "I sent in a memo at the beginning of March about a contractor who wasn't comfortable putting a one- or two-ton boulder on a pond liner. He worried about making a hole. I said, 'What about coming up with a rock pad for people like him?' [Four months later] I asked Ed Beaulieu, 'What's happening with the rock pad?' He said, 'We're testing it on Monday. It will be ready in a couple of weeks.' What other company can move so fast?"
With each innovation comes information about new ideas and products and techniques for Aquascape's customers. But to get the information, people have to stay in the loop. That means taking advantage of Aquascape's educational offerings, yet another factor. The centerpiece is the traveling training program, which swings into high gear every year about this time. Backing it up is an entire publishing and video division, which generates a flood of training and marketing materials.
And beyond education, there's one final factor that has to do with the ponds themselves. "You know," says Smith, "ponds aren't just a business--they're a lifestyle. After 9/11, I must have gotten six, eight calls from people who wanted to thank me for the relief their ponds gave them from the flood of bad news. We get that all the time. You build a pond for $10,000, and people hug you. You turn on the water, and they cry."
Every professional pond-builder can tell stories about customers who develop deep, emotional attachments to their ponds. "People give names to their fish," says Tonja Andreattia, of Andreattia Waterscapes in Medford, Oreg. "The women tell me, 'My husband would never go out in the yard before, and now I can't stop him.' Everybody is so appreciative. They say the pond changed their lives." Contractors, too, have a passion for ponds that borders on religious fervor, and it rubs off on Aquascape. "I earn a good living with ponds," says Kenny Floyd, who overcame various alcohol and drug addictions before starting Aquatic Construction in Metairie, La. "More important, I get up every morning and do what I would do anyway for free. I can tell you, Greg Wittstock re-creates lives. He did mine."
He's been called a hypocrite, but Wittstock says he bought Water Creations to solve a strategic problem: an inability to penetrate the do-it-yourself market.
Back in Batavia, Aquascape's headquarters is getting a little crowded these days. There's still room for the indoor pond filled with koi that eat out of your hand, not to mention the 15 aquariums and terrariums housing all manner of fish and reptiles, from freshwater stingrays to a bearded dragon lizard named Rex. There's still room as well for the fitness center, the indoor basketball-soccer-tennis court, and the two pool tables. Workspace, however, has become tight as the number of employees has exploded from 71 to 130 people, thanks to Aquascape's purchase of a major competitor, Water Creations, in January.
That acquisition raised eyebrows throughout the industry. For years, after all, Aquascape people had been heaping scorn on Water Creations and its products. There was the additional irony that Aquascape--so often accused of being cultlike--had bought a company founded by members of a real religious cult, the Plymouth Brethren, a fundamentalist Christian sect that traces its origins to 19th-century England. Steve Stroupe, for one, couldn't resist poking fun at the merger, putting out a bogus press release with the headline "Cult Leaders Bury the Hatchet" and writing a satirical analysis of the deal entitled "The Church and the Bordello."
Wittstock told people that he'd bought Water Creations, now called Nursery Pro, because it solved his company's major strategic problem, namely, its inability to penetrate the huge market of do-it-yourselfers who find Aquascape ponds to be out of their price range. He pledged that he would eliminate the most objectionable features of the Water Creations products and use them to get people started in ponds. The goal, however, would be to move retail customers up to professional ponds over time. How? By education, of course.
Eventually most of his followers came around, although there are still some doubters. Kenny Floyd, the Louisiana contractor, remains uncomfortable with the acquisition. "I felt it was hypocritical," he says. "Water Creations sold a lot of gadgetry that we thought wasn't good. I have confidence that Greg can improve the products, but it's a big change. I'm really going on my faith in Greg."
Greg is also going on his faith in Greg, which has never been in short supply. He believes that the industry is poised to explode, and that Aquascape/Nursery Pro is now positioned to take advantage of the explosion. He points to a study by a market research firm showing that ponds and water gardens are the fastest-growing segment of the $46 billion lawn and garden industry. Then there's the survey from USA Today indicating that more homeowners (16%) would choose to enhance their homes with a water feature than would go for any other home improvement except decks (also 16%). With Nursery Pro, Wittstock now has access to the entire market. "Before I could only reach the people who could afford the big ponds," he says. "Now I can get to anybody, and I can bring them up." The average pond owner, he notes, buys three ponds in a lifetime.
Within a couple of years, Wittstock expects to outgrow his present, 103,000-square-foot facility, but he has a plan to deal with that, too. It's called Aqua Land, and it will be a 5.7-acre, wedge-shaped, ecofriendly building with grass on the roof. That's where he plans to put the soccer field for the guys in the warehouse. In addition, there will be a swimming pool, at least one koi pond, a daycare center, a state-of-the-art fitness center, a spa, a tennis court, and two racquetball courts. The building is supposed to be finished by December 2005. It will cost at least $15 million.
Aqua Land is the Pond Guy's dream come true--or at least one of his dreams. There's still that little piece of unfinished business with his father. The two haven't had much contact since 1997. In that time, Gary has remarried, and Greg and his wife have had two children, whom their grandfather barely knows. Greg insists that he'd like to make up. "I'm not good with this feeling," he says. He's not sure that making up will be possible, however, as long as he and his father are competitors.
Gary, meanwhile, says he'd like nothing better than to be the doting grandparent of Greg's sons. Then again, he has no inclination to leave the pond business. On the contrary, he recently started another company to manufacture pond equipment. As for PSA, he insists it's in good shape. "We've got some great new products," he says. And profitability? "Well, that's something we have to work on."
Of course, one way to work on it might be to send some people to Aquascape's breakeven seminar. It doesn't appear, however, that Gary will be doing that anytime soon. He and his son aren't talking. I
Sidebar: Are You on Track to Break Even?
The principles behind Aquascape's approach to breakeven analysis are almost as old as accounting itself. What's new is the way Aquascape has used its formula as a tool for education, communication, and marketing. The secret lies in the formula's simplicity. To calculate your breakeven point for a given period of time, you need to have just two numbers, your overhead expenses and your gross margin.
Start with your total sales for the period. Then calculate your cost of goods sold (COGS)--or, in service businesses, your cost of sales--by adding up all of your direct costs, that is, the costs directly involved in obtaining or producing what you've sold. You get your gross profit by subtracting COGS from sales. Express that number as a percentage of sales, and you've got your gross margin.
You calculate your overhead by adding up all of the other expenses, the indirect or fixed ones (rent, utilities, insurance, administrative salaries and benefits, and the like).
Here's an example using projected numbers from Aquascape's construction division in 2003:
|Total Cost of Goods Sold (COGS)||$453,459||60%|
|Total Fixed Costs (Overhead)||$247,115||33%|
|Net Income From Operations||$49,246||7%|
By definition, breakeven is the point at which total revenue equals total costs. Put another way, your gross profit will equal your overhead at the breakeven point: Breakeven Gross Profit = Overhead
But remember, gross margin is gross profit divided by sales. That means gross profit equals sales multiplied by gross margin. Therefore, at the breakeven point: Breakeven Sales x Gross Margin = Overhead
To figure out the amount of sales you need to break even, divide your overhead for a given period of time by the gross margin. Breakeven Sales = Overhead / Gross Margin
That's the basic breakeven formula, and there are a lot of things you can do with it. Let's say you want to buy a truck that will cost you monthly finance charges of $500, plus $250 per month for fuel and insurance (let's assume those are the only new expenses). In a year, you'll make payments of $6,000, and you'll have fuel and insurance costs of $3,000, for a total of $9,000 a year in new overhead expenses. How much do you need in additional sales to cover those expenses? You divide $9,000 by your gross margin, say, 40%, and you find that you'll break even on the investment with a sales increase of $22,500 per year.
You can then ask yourself, "Will this truck allow me to get the $22,500 more in annual sales that I would need to justify spending the money to buy it?" It's often easier to answer the question if you take the analysis a step further. Say your average sale is $6,000--about the price of a pond. In that case, you'll need the equivalent of 3.75 ponds ($22,500 / $6,000 = 3.75) in additional sales to break even. So you can ask, "Will this truck make it possible for me to build 3.75 more ponds this year?"
You can also use the formula to figure out how long it will take you to break even in a given period. Suppose your annual overhead is $240,000, and your gross margin is 40%. You'll break even when you hit $600,000 in sales ($240,000 / 0.4 = $600,000). Now suppose that, on average, you do $20,000 a week in sales. At that rate, you'll hit $600,000 in 30 weeks. When you get there, you will have covered all of your overhead expenses for the year. In the remaining 22 weeks of the year, you'll earn an operating profit of 40¢ on every $1 of sales.
But what if you could increase your weekly sales to $25,000? Your breakeven point would go down to 24 weeks from 30 weeks, and you'd be earning 40¢ on the dollar six weeks longer. Or what if you could increase your gross margin to 44%? Then you'd need only $545,455 (rather than $600,000) in sales to break even.
Bo Burlingham (firstname.lastname@example.org) is an Inc. editor-at-large.