How to Adapt Your Business Model for Hard Times
BY Norm Brodsky
Norm Brodsky suggests getting a second opinion on big decisions.
Norm Brodsky is a veteran entrepreneur.
Dear Norm, In 2004, I opened a dealership providing installation and service of high-end, custom-made garage doors. From the beginning, I had problems with the quality and lead times of suppliers. So, in 2006, I went into the garage-door manufacturing business. It was a huge success—until the housing market collapsed. These days, it's a struggle to keep the manufacturing operation going. Although I saved some money when times were good, those savings will run out early next year. I could stop manufacturing, but then I'll lose the highest-quality products on the market, and our installation business will suffer. I've been thinking about selling to dealerships outside our area, but I worry about the cost and the time involved. I don't know whether I'd be throwing good money after bad or saving my company from a slow, painful death. What do you think?
Gary Zacchia CEO, Architectural Door Corporation Fairfield, Connecticut
Changing a formerly successful business model is always tough. You naturally worry that you'll wind up with nothing. Yet you also worry you'll get into even more trouble—and maybe miss out on a growth opportunity—if you don't make the change. That's a good time to seek a fresh perspective on the situation, as Gary Zacchia was doing. From his e-mail, I could see that he was a smart businessperson. I was particularly impressed that he'd saved money during the good times, knowing they wouldn't last forever. Most people weren't so wise. But before offering my opinion on what he should do, I needed a little more information.
We talked, and Gary told me that his company installed almost all (85 percent) of the garage doors that it manufactured. He sold the rest to other installers. The installation work, however, accounted for only a quarter of his sales, and his gross profit on it was a mere 25 percent. Moreover, virtually all of his sales were to customers within a 20-mile radius, because it wasn't economical to provide installation and service beyond that area.
So the company obviously had growth opportunities, including the one he'd mentioned in his note—selling to dealers and installers outside his 20-mile radius. He might also think about outsourcing installation and putting all of his time and energy into the higher-margin manufacturing operation. Finally, I suggested he look for new products to make and new markets to enter—say, by selling to business as well as residential customers. His future clearly lay in manufacturing and selling more garage doors, rather than installing more of them.
But, of course, he already knew that. He just needed a reality check. We all do from time to time. I was happy to provide it.
Please send all questions to AskNorm@inc.com. Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, is now available in paperback under the title Street Smarts: An All-Purpose Tool Kit for Entrepreneurs.