Work diversity -- Good or bad?
We would like to start up a company that could build everything from custom kitchens to houses. Some people say we need to specialize. Do one thing and do it well. Others say that narrow specialization limits your market and makes you more sensitive to market swings. I like diversity. In our current work, we are accustomed to multi-tasking and this isn't daunting to us. But is it an unrealistic dream to be a diverse company?
I started out doing additions, remodels, cabinets, and finally left the GC part behind. It always seemed to be headaches, and unforeseen costs. Today, I still do commercial carpentry along with casework and millwork. I found that I do better at things that I can control from start to finish. It took a long time to get a reasonable list of good subs and then they usually ended up with someone with larger jobs and deeper pockets. It would be very scary in today's tough labor markets to start out as a GC.
I took the route of specializing. After growing up in the GC, remodeling business, and owning my own company doing the same for several years, I learned what I liked, what challenged me, what was profitable to do and went for it. It did take longer to get things going in a specialized field and at first I was willing to take on just about anything that would pay the bills. After 10 years I am more profitable and can pick and choose the jobs I want and name the price I want because we have the reputation of being the best in the business. That reputation would have never been possible if I were a Jack of all Trades.
In my opinion, a lot depends on what you want, how badly you want it, and the reasons why.
At the risk of sounding philosophical, if you want to offer all the services you mention in an effort to "corner the market," you're doing it for the wrong reason.
If, on the other hand, you assemble a group of reliable subcontractors, are determined to treat them fairly (i.e., don't finance your jobs on their backs -- that's what banks are for), and if you remain focused on doing the best job possible for your clientele, whatever their income range may be, you're thinking in a better direction.
That said, you are biting off a lot. Better to take small bites and be sure you can chew them. Do that, and growth will happen as it should. Force it, and you may be sorry.
Anthony Noel, forum technical advisor
I am in a similar position. I am a corporate guy and am going out on my own. Someone I respect said the sure way to failure is trying to be all things to all people.
I am going to specialize in a high-end niche product. I will then expand to other products directed at the same audience leveraging the existing equipment. It will allow savings on marketing and allow me to build a clientele and reputation.
One thing that is important is to look at how diversification effects your expenses.
GC and cabinets help because you are dealing with the same people and you can feed your own shop some work. The marketing is somewhat parallel. It hurts because the equipment is somewhat diverse. I do not know the answer to this question, but will the competition (other GC's) send you cabinet business?
Our business specializes in one particular industry. After having saturated it, we look for other opportunities utilizing the equipment and skills of our current employees.
When we began, we were so desperate for work that we would do anything. The problem was that we couldn't use furniture component samples to show contractors when bidding cabinet and molding jobs. By specializing in one area, we created our own niche market.
Now we boast the equipment and skills to get us into projects that are outside our niche. Advertising CNC capabilities is easier to sell than specific products. I think most customers are looking for companies who have a wide range of capability, but aren't scattered all over the globe on products. One difference for us is that we do a lot of production work for other companies who do final assembly. So our customer base is different then the custom cabinet or building industry.
My suggestion would be to start with a specialization, get your feet planted, then expand. Don't try to do too much. In terms of the LLC arrangement, talk with an accountant--you would probably be better off with an S-Corp.
I started out as a GC and then started to lease a cabinet shop. I learned I could not keep up with the details that were required in the cabinet shop and continue the GC business. I focused on the shop and only do construction work for previous steady clients (who I turn down from time to time, as well).
Problems between the two go by different names but generally give you the same symptoms and same headaches. I don't necessarily prefer one over the other. Most of the people who have told me to diversify were people in the financial business. Most of the people in our business say to focus on what you do well and find profitable and continue to build and improve within that arena. I think that is the best advice.
I grew up in construction and went the narrow road. I built a shop to do commercial interior work. We don't do residential or install. We have the equipment and employees to turn out the typical mall store in just over a week. We ship to 2 or 3 stores a week and provide a well-thought-out package that is the result of constant attempts at improvement. You're more likely to reach a higher level working in a narrow band. That said, there is a very good living to be made in the remodel business, but with a much smaller shop overhead than those specializing. Small overhead is good until it limits your ability to meet your customer's needs.
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