Taking a Business to the Next Level

      A question about equipment investment turns into a thoughtful seminar on marketing, pricing, and finding your niche. November 10, 2005

My wife and I started a full time woodworking business producing high end custom furniture and built-ins. The business started as part time venture almost 5 years ago in a 2 car garage with only $7,000 cash and a small business loan worth $30,000. This purchased the basic machinery, built a website(which by the way is how we get most of our sales leads), built about 12 pieces for our portfolio, produced a low budget catalog, and helped us attend a home show, with national recognition.

The money lasted about a year and a half, and we've been basically growing since then on down payments and whatever we've had leftover in the form of profit from jobs. This is not healthy in my opinion. The business has grown to a projected $200,000 in sales this fiscal year still without advertising, and we are out of options for financing to keep up with the growth. We don't own a home, and have very little equity.

In hindsight, the problem has always been undercapitalization, and not producing the sales volume necessary for successful business. We do great work and have a lot of ambition for the future, but our machinery and setup needs an overhaul. We've been basically working with a nice hobbyist setup and need to take it to the professional level.

We are getting behind on orders, and getting behind ultimately means cutting into our operating profit, if not completely eliminating it. In my estimation we need to do at least 1/3 more work in the same amount of time and keep the quality the same to keep profits at a healthy level. Any help or comments would be appreciated.

Forum Responses
(Business Forum)
From contributor A:
If you are confident in your prospective market and take great care to only get what you can use, many outfits offer machinery leasing. I've seen this work well for some busy but under-funded shops.

From contributor B:
What specific machinery will give you the 1/3 increase in productivity? Usually, there is no magic bullet as far as machinery goes. A more likely problem that plagues small custom shops is underestimating time and worth. It takes much more time to produce a one-off piece of furniture than for one that is mass produced. In todayís market it is very difficult to get paid a reasonable rate for a one-off piece. Before you go out and buy a bunch of expensive machinery that might sit idle most of the time, you need to do some research into where your productivity could be improved.

Give us a list of your tools and an idea what your process is from beginning to end and we might be able to give some solid advice.

From the original questioner:
Here's a list of what we have:
2-10" tablesaws, 1 set up for crosscutting with an Excalibur crosscutting fence, the other set up for ripping. We only use Forrest blades.
1-52" Sawtrax Panel Saw
1-Delta 8" Jointer
1-15" Delta Planer
1-60 Gallon Compressor, Runs Shop Air Lines
1-Woodmaster 12" Molder, 5 horse motor
1-Woodmaster 36" Drum Sander, 5 horse motor
1-16" Grizzly Bandsaw
3- 2HP. Penn State Dust Collectors
1-Router Table, Benchdog with 3.25 horse Porter Cable router.
1-Vacuum Veneer Press with bag and Klamping Function
1-Delta Drill Press, midsize
12" Dewalt chopsaw
1-Leigh Dovetail Jig, Dedicated Routers
1-HVLP Gun, Lynx-3, for spraying waterbase pre-cat lacquer finish
2-4 x 8 workbenches with storage underneath
1-German made cabinetmakers bench
40 Bar Clamps of various sizes, including 10 Biesse 50" Bar clamps. Lots of small Jorgensen clamps
A few plunge routers, laminate trimmers, etc.
Assortment of handtools, planes, scrapers etc.

Here is where I think we need help:
1. Edge Banding: We only do solid edge banding 1/4" thick as our customers won't go for the thin rolled stuff. We need a quicker way of gluing and trimming.

2. Finishing: We spray with a HVLP gun off of a compressor right now and are limited to waterbase because we can't afford to pay for a booth. I estimate it takes twice as long to finish with waterbase pre-cat lacquer over nitrocellulose base lacquer or something similar, plus the results aren't as great on darker woods. I've looked into outsourcing my finishing, and there are too many potential problems. Also the lead time is too long. We need a booth to work effectively in house.

3. Permanent Dust Collection System: Just running the standard hoses right now on a 4" port on 4 machines. The tablesaws don't have dust collection. This also doesn't work well with the bigger machines and is inconvenient with the layout of the shop. The tablesaws fill up pretty quick and there's always a nice dust spray when running the dado head. Sanding produces a cloud of dust in the shop during the winter. We sand with the door open during the summer.

4. Doors and shaping operations: We currently have no means of making doors efficiently. Most door designs are custom and require us to make them, so ordering from Decore-ative Specialties is not in order. Occasionally we get an order that allows for that, but rarely. Two shapers in the 3 to 5 horse power range with a power feed on one seems like a reasonable solution for tongue and groove, as well as raised panels, cope and stick etc.

5. Line Boring and Hinge Boring: Just working with the manual jig right now and the drill press with a 35mm bit. It has worked successfully up until recently, but I can see it being a problem on a unit coming up which is 30ft wide and 10 ft tall, with all the uppers having adjustable shelves.

6. Drawing Program: We need a program that draws, generates a cut list, and estimates materials. I can see this saving possibly 10-12 hours a month. Our estimating process is very long winded right now, and requires an expert to quote. I would like to have a system where one could choose certain options, and a professional looking quote could be generated by just about anyone. We send out 2-3 quotes a week right now and it takes about 1-1/2 hours to quote one job.

Let me know your thoughts.

From contributor C:
Where are you trying to get in your business? I don't understand how you need help. I have about half of the tools you have, and will probably generate about $150,000 in sales this year without advertising. We lease a 1600 square foot shop with an office. We started last July with $5,000 for the tools and never got a loan. We are able to produce all of our work on schedule with just me and my brother. We do kitchens, baths, entertainment centers, built-ins, furniture, etc. It seems to me that if you had $200,000 in sales that you should be on top the whole way. Did you upgrade to a shop? How many guys work with you? I think you need to clarify what you are looking for help with.

As far as equipment, I bought a 13 spindle Delta manual line boring machine for $1,000. It works a lot better and faster than a jig. Also, for a drawing program, we got KCDW. It gives cutlists, pricelists, 2D and 3D color drawings that are perfect to show the customers. It is expensive but I've sold more jobs because of it.

If you need to produce more, hire an experienced person and schedule cutting and milling on days opposite each other. One of you should be assembling your project while the other is milling and cutting his. Then, he would be assembling while the other is finishing. If you canít get a system that flows like this, make sure that you are doing opposite things so that neither of you is waiting to use a tool.

You don't need fancy machinery to run a productive shop. You need productive thinking people. When I build, I typically rip more than one job at one time because I am better than my brother. By doing this, I know that if I need to cut something for one job and he is on the saw, I can just move to the next job until he is done.

Budget your money, and send flyers or brochures to designers or someone who can give you steady work. You build custom furniture but it is a fading art. Where we live there is a furniture shop on every corner. The designers will always be looking for pieces they cannot find at the store.

You shouldn't ever need financing to keep your business going. That is what you work for - to make the money. You will always be paying off loans if you grow your business that way. That is what a savings account is for. If you need a loan to get a bigger shop, you are not producing enough work to get it. If you need the loan to hire new help, you are not producing enough to employ them and they will not have enough work to stay employed. And the same applies to machinery.

It seems to me that you are either spending too much money on a personal level, or you are trying to do everything at once. The business should always take care of itself or you are heading down a dead end road.

From the original questioner:
The problem from the beginning was not having enough sales to support the overhead. Another contributing factor was that we started out with a focus to make custom furniture, we found out quickly that it was not as profitable as we had thought. It was ok when we were working in the garage where we started, but when we moved out the first time, 911 hit, and our work dropped precipitously. We spent our reserve cash and savings to make good on our lease and keep our credit in good health. We had to move back to the garage. We have been playing catch up ever since to resume growing the right way.

Once you get behind the 8 ball, it takes some time to get out and build up that reserve cash again. The past year and a half has proven to be a very good sales period for us, and it looks like it will continue this way. So, yes, the work over the past 5 years has been up and down, but mostly up as of late.

You mentioned that you have your brother. Is he a partner? I have always needed to hire an experienced guy to build the type of work I do at $22 an hour plus bennies. Getting someone dedicated to the cause has been even harder. That amount is the going rate around here for anyone who can build a project start to finish. I can't afford to go with inexperienced guys. I've tried that route. Cost of living is about $1,100 a month for a one bedroom apartment. My shop is $1500 a month plus utilities. I had to slap down $3,000 just to get in here.

Three people currently work in the shop and are employed.
1. Part time, 2 day a week helper at $10 per hour.
2. Full time, 5 day a week experienced cabinetmaker at $22 per hour.
3. Full time, 6 day a week owner, me.

We put out about $14,000 a month of work. We need to put out $18,000.
So far I've concluded two things from this input:

1. You hit the nail on the head when you said that designers and customers alike are looking for anyone to do that specialty job for around the same price as a standard cabinet. In fact, I've yet to meet a designer who actually does anything except act aloof and maliciously mark my price up. They want me to take care of everything and then charge low enough to make them a great profit.

We don't charge enough for our specialty work and need to charge more, or we need to change markets to do something more repetitive and predictable and keep the same prices. We are bombarded with work, half of which is profitable, the other half of which is not. I've found that this has been an unhealthy trend in our business from the beginning. One should only take on profitable jobs. Profit feeds the business goals, and I agree the business should not grow on anything else, otherwise we are growing too fast and headed down a slippery slope of failure and high interest rates to follow.

2. We have enough tools to get the job done given the price increases, however we will have to begin to market our services to reach the right people who will pay for top quality work and turn down those unwilling to pay for quality, even in the slow periods. If we decide to stay in the price range we are in, we will have to lower product quality to match the price.

From contributor D:
The line boring and software sound like necessities for you, and a better dust extraction system is necessary too.There's good money in decent finishing, so a small booth may be well worth the investment.

A good system with efficient flow sounds like the biggest problem, but I know that's easier to address for cabinet shops than for custom furniture shops. Start by looking at your process start to finish and analyze each step.

1. Can you reduce set-up time for different operations - dedicated routers, saws, etc.?
2. Are there parts than can be produced in mass quantity?
3. Can any parts that can be outsourced or pre-made?
4. Are there common or repeated operations that could be done by a lesser skilled, lower paid helper?

There are too many to list, but a good flowing system will do wonders, but that can be hard to accomplish with your type of work. Meanwhile, consider the fact that your type of work demands higher pricing and longer lead times and allow for that when bidding.

There is a lot of estimating software out there, but many times a well thought out personalized spreadsheet like Excel can be tailored to suit your needs well.

From contributor C:
My brother is not a partner. He is new to the industry and sometimes can cost me quite a bit of money. It sounds like you are in CA. We are in Orange County, so Iím sure you can imagine the cost of a shop. We got a deal at about $1 a square foot. We have to pay for electric separately. We even had to rewire the whole place to get what we needed for power.

I suggest that you should look for interior designers. They will ask you to make a $4,000 cabinet one minute and then a $30,000 kitchen the next. We are strictly referral based right now. We also try to get involved with the Philharmonic house of design and have been the last two years. This is free advertising to upper class people as well as several designers.

You should also expand what you do. You like to do furniture and built-ins. Maybe you can do wall units, offices, mantles, wainscoting Ė these are the things that are simple to do, and pay the bills because you can do them quickly. You may even consider paying someone to do them specifically, such as the guy you are paying $22/hour, if he knows everything from milling to finishing. If not, you may be paying too much. You should train the $10/hr guy to do mouldings and basic cabinetry work. By the time he makes $12/hr he should be able to fly through most moulding installs and build vanities, etc.

The bottom line is that you should never offer one or two products, because, for example, you could build a $10,000 executive desk with raised panel front, or you could build a $10,000 wall unit with paint grade material and tell the homeowner they have to hire a painter. Which one do you think you could build faster and make more profit on?

You'll find that if you are a woodworker, you should offer woodworking. This includes everything from exterior and interior custom doors to mantles to kitchens, baths, entertainment centers, furniture, etc. If you are a furniture maker you should work for Ethan Allen. If you are a cabinet maker you can offer kitchens and baths.

When you say you want to expand I think you are just saying you want to make more money. You will find that doing work to pay the bills comes before doing work to make a lot of money. The more jobs you do to pay your bills, the more referrals you will get. I have done work for a middle class person and received a referral in an upper class area. It has progressed ever since. You may have to make a name for yourself everywhere before you can count on only doing upper class work. Expand your business to everyone first, then expand it into making the money that you want to make. Don't hire someone for more than $15/hr. Let him prove himself. Any man can tell you that he has ten years experience working in a shop, when in reality he worked in a production shop in the shipping department.

From the original questioner:
To contributor C: I'm on the opposite side of the US, just outside of Manhattan. September 11 did have an effect on my market. People stopped taking risks for a period of time. Those who had deep roots fared ok, but those who didn't really felt it.

In regard to your suggestion, we have branched out beyond furniture-making, which is why we have so much work now. If we had offered many services from the beginning, I don't think we'd be having this conversation. The sales lulls just killed us. Since we've built our portfolio to include built-ins and wall units, we have had no sales lull.

One job led to the next, and as our portfolio grew, so did the jobs. Last fiscal year we did 12 substantial built-in jobs between 12 and 18 feet wide. This year we will do at least that. The furniture-making demand is really fading as our portfolio is now focused on wall units and built-ins even more. The only demand for furniture lately has been for custom dining tables.

I have yet to try and hire someone in the $14-15/hr range.
This may be the solution. I have to supervise the $10-12/hr range guys and it hasn't worked on a permanent basis. I did have a few college guys who had woodworking skills who worked out well last summer, but they went back to school. In my experience, two $10/hr guys are not as proficient as a $20/hr guy because there is no re-checking of work, no rework, very few mistakes if any, and I am not pulled off my work answering questions or troubleshooting a problem.

I need someone who wants to learn and grow with the company, but who will not cost me a fortune up front. He also needs to have 3-5 years experience in a high end cabinet shop.

From contributor E:
I would love to have a couple of guys like that too here in East Texas. I have one guy who is in his 40s but is a novice at woodworking. He is very diligent and does have the ability to think things through, and more importantly, he understands schedules and deadlines and isn't afraid to ask questions. He's been working wood for only about six months, but I would take two more just like him. My other employees are much younger, more experienced, but not career-minded. I spend a lot of time going behind these guys and making sure things are done to my standards. I also spend a lot of time on the phone and worrying about what's going on at the shop when I'm not there.

From contributor F:
If you want to make a lot, charge a lot. Your post indicates that you werenít making enough profit and you had too much work to do. Charging more may solve one problem or the other. Buy the line boring machine this month, and next month buy a cabinet drawing program, while looking for a used, less costly spray booth. Let the first piece of equipment pay for the next piece of equipment.

Do you have any contacts with any other shops? Approximately half of my work is for other shops. Last month alone I did almost $20,000 worth of work for other shops. This is work that I usually bid to the shop, and they mark it up and sell it to the customer. Usually these jobs are too fast paced for the shop, and the customer is desperate, so I can charge a lot and still get the jobs.

From contributor G:
Nothing speeds things up like fresh, new, clean, wide open spaces. Move to a much larger shop, regardless of your shop size now. More room will speed things up. Maybe a price increase is in order? Your machinery list appears to be fine for you and your spouse.

From contributor H:
I started out the same way - with the furniture - and found out the money was going to come from casework.I converted my furniture shop into a cabinet assembly warehouse. I did this by learning Ecabinet Systems software. I found a CNC guy to cut my parts. I outsource my components. You can order all your parts through the system - hardware and doors/drawers. You set it up and it drills all your hardware pilot holes, cutouts, etc.

You may need a booth or you may need to outsource your finishing. You can always take a piece of crap and make it look good, but often times I find people ruining fine woodwork with horrible finishing. You need to switch to a lacquer system.

There has not been a job yet where I could not satisfy a designer, architect, or citizen with outsourced products. And if I can't, I will charge them for it.

It also seems like you need a shop hand. If you switch to a CAD oriented shop for boxes, the help doesn't need to be a seasoned woodworker. He can assemble, prep, stain, etc. for you.

I'm in your same region, and I know how picky people get. Take their designs back to them and show them how you propose to make it. If they want to make money, it would make more sense for them to get a good product at a lower price, and still sell it as custom. Do you think the end user actually whips out their compass and protractor to analyze your mouldings? If you think they will, charge them and give them a cost analysis of the difference.

From the original questioner:
A general consensus from all who have posted seems to be:
1. Order doors
2. Order drawers

I have two questions:
1. How do you make something original with preordered doors, or is that a lost art too? I realize the door sizes can be customized, but that's it. Unless I'm missing something, I've yet to come across a door supplier who will lay up diamond quartered veneer panels, vary rail thickness, or do individual glass paned doors. However, this is what I have to do for my next 3-4 jobs. My clients come to me because they get something they can't get from my competition, who orders everything.

If I'm correct in my assumption, I need to decide whether I want to join the band wagon and keep my prices competitive, or skyrocket my prices to justify original woodwork.

2. Ordering drawers is something I am interested in, however I've heard a few horror stories. One is that drawer companies do not use glue when they put their drawers together. They do glue the bottoms in with hot melt and staple at an angle, but do they glue the half blind dovetails? We currently make a through dovetail joint on the Leigh jig and attach the front with washer head screws.

I have yet to have a complaint about a drawer falling apart in 5 years of business. I guess I could give the customer a choice with the drawers, and again skyrocket the through dovetailed drawers. I've cut pre-made Conestoga drawers down to fit into a cabinet, and I was able to pull the drawer apart my bare hands, because there was no glue in the joints.

I'd like some feedback on this please, and your experience with pre-made drawers. Also, are some drawer companies more reputable in regards to quality than others?

From contributor I:
Your observation that you need to order doors and drawers may create a problem that you hinted at in your original and subsequent post. If you do through dovetails and your own doors, made your way with no problems, why change? If you buy drawers and doors, what will make your work stand out amongst the others? Service can account for some success, but if you are a custom cabinetmaker, a high degree of service is fundamental for success.

I suggest you look carefully at what your strengths and weaknesses are, and shift accordingly. You should be able to borrow on your experience. Find an accountant you can talk to, and run up some 5 year projections. A full blown business plan is usually not necessary. The 5 year projections will help you and the bank see where you want to go, and how you will get there. Borrow for what you really need, and be very conservative. You may need to build up marketing, and use borrowed capital for getting the word out about your unique product.

It sounds like your strength is in the details. If you give them up, what do you have? Everyone is cheapening their product - if you go for the highest quality, and deliver, you don't have to slug it out in the trenches with the masses.

From the original questioner:
To contributor I: The problem I'm having is consistently getting sales that are priced in the upper echelon, and like you so accurately mentioned, target marketing is the only way to keep bringing these people in.

The other problem is wearing too many hats. I'm an excellent salesman, young and energetic, know my details as you mentioned, but have a problem multitasking with the labor end of woodworking. My people and computer skills are better than my woodworking. I do great work when I'm focused, with average speed, but I'm nowhere near a guy with 25 years experience in the shop.

I have considered partnering with another experienced craftsman-type, but I have heard so many horror stories that I tread very cautiously in that direction.

With the right financing to fund growth, I know this business will fly. We do outstanding work. The business is doing ok, but I know out of the 6 C's of lending, we don't have enough cash, or equity for that matter, to fund where I'd like to take the business.
I didn't mention this, but we have an incredible website with about $15,000 worth of professional photos and excellent rankings for our target area. The graphics work and javascript is done well too. 80% of my new sales come through this medium at only $15.95 a month. I do all the website upgrades, photo editing, and script writing for the site. It's been my greatest tool until now.

Regarding target marketing - the people who call are hit or miss, with about half of them being my market. Where can I market my service to reach the higher echelon customers? What price range per foot would you charge for custom built in work? As I see it, we need to charge $1,200-$1,400 per foot for every job that is completely unique. We work in all types of higher grade woods and veneers and custom finish to match samples including glaze, paint, pickled, bleached, natural hand rubbed oil varnish blend, etc.

From contributor K:
Raise your prices aggressively, and be very cautious about investing in more equipment with leases, etc. All that overhead can make you miserable and put your business at risk.

Keeping doing what makes the profit and stop doing jobs that are not profitable. At some point you may lose customers, or have to completely drop a type of product offering, but that's ok. That will allow you to do more of the things that do make you money.

Consider subbing out all the larger finish jobs, and on the smaller jobs, use a quality wipe-on finish such as Bartley's for a stunning result.

From contributor M:
Another area you should consider is the sales process. Who is handling the sales process with the customer?

Your profit or lack of profit starts with the job you take on. You said half of your jobs pay a profit and half do not. It sounds like your salesperson needs to be more in charge of the customer and direct him towards what makes sense for the both of you. You should either move the customer towards a product or item that helps you produce a profit or move the customer towards the right price for you to gain a profit.

For example, if you came into our shop and saw one of our kitchens being made I can promise you that out of ten kitchens you would see at most only two bench tops with post formed edge. The reason for this is that we do not have a postformer. So, our sales person promotes laminated bench tops with timber routed edges and the customer ends up loving the idea, sees the benefits of the timber edge, and places the order for them. We can make more money from a timber edge bench top, given the short time it takes us, than if we outsourced for a post formed top. That alone adds around $1500 more profit to our average job. For doors, we can buy vac wrapped doors but we donít if we can help it. We push the benefits of spray-painted and lacquer doors. Rather than a fine and heavy routed door, we push a more simple clean line door, and therefore we get to make a lot of flat, round edged doors.

All of these items make us more than triple the profit compared to if we outsourced the doors. Those two areas alone provide for a profit increase of more than $2,500 from every job.

Consider your shop and its machines but also please consider what youíre selling, why youíre selling it and how youíre selling it.

From contributor N:
I am new in the trade and, of course, scared to death that I won't be able to make it. I am in a remote area and lack a population to sell to. I have decided to make the lumber that you use to make the cabinets.

I want to suggest a book that I have found encouraging and honest - The E Myth Contractor by M.Gerber. It is essential reading that will encourage you to create a company and not a job.

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