Gauging the Health of Your Company's Growth
You recently wrote about the difficulty and high cost of launching a product that requires a great deal of market education. I'm wondering if that applies to our new business, WamBam Fence. We sell "no dig" vinyl fences--fences you can install without digging holes or pouring cement. We launched in late 2010 and projected we'd have $2 million in sales by now. But our sales are less than half that amount. Our customers love the product, and 95 percent say they will never again install a fence with traditional concrete footing. So why aren't we growing faster?
--Stephen Prins, president and co-founder of WamBam Fence; Cornelius, North Carolina
As I've often noted, entrepreneurs tend to be overly optimistic. Sometimes they don't appreciate what they have accomplished because their expectations starting out were so high. Stephen Prins and his partner, Denise Esser, are a case in point. Their company is growing at an annual rate of about 25 percent and has good gross margins. But the partners think they're doing something wrong--because they expected to have twice as many sales by now.
And in fact, they could have built the business faster. About 90 percent of their sales are direct to consumers, through their website. The other 10 percent come through resellers. On those, their net margins are naturally much lower, given that the reseller also has to make a profit. Had they concentrated on building the reseller channel, they would no doubt have met or exceeded their sales goals, but they wouldn't be making nearly as much money.
So the company is growing at its current rate because Stephen and Denise have made a choice about how to sell their product. And, in my opinion, they made the right choice.
Aside from reassuring them that they are doing just fine, I suggested that they focus on driving more business to their website. For example, they might consider partnering with companies that sell to consumers who would be prospects for fences--say, pool owners, gardeners, or landscapers. There's also the do-it-yourself home-repair industry, which is full of magazines and websites searching for fresh content. WamBam's fences would be right up their alley. The point is that the more visibility Stephen and Denise can get for their products, the more direct sales they'll do--without shrinking their margins.
Stephen thanked me and said it was reassuring to know they are on the right track. "Have you ever felt you were off the deep end, Norm?" he asked.
"Most days I do, but don't worry," I said. "It only lasts a lifetime."
NORM BRODSKY | Columnist
Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.