Defining A Business?

04/02/2014


From original questioner:

I have been building custom cabinets for about 10 years now. I started off on my own with a couple years of experience, and a lot of youthful enthusiasm and naivete. Never a proper business plan. Learned all my lessons the hard way.

I'm tired of struggling. On the outside, the company has nice machinery, prestigious clients, a good reputation, a good website, two employees and a spacious workshop. Behind the curtain is a mountain of debt.

We do every decent job that comes along, therefore every job is like reinventing the wheel. Maybe the Henry Ford mantra is a bit narrow ("any color, as long as it's black"), but I want to do one thing, and do it well. We are fortunate that our market is large enough to support specialization.

I have a vision of what this business looks like. But the steps to putting it all together and "defining" what the business is, are very elusive to me.

We've gotten this far, how do I make it WORK?

From contributor Jo


Been there. I solved the same problem by hiring a good business coach. Best money we ever spent.

From contributor St


I highly recommend an organization called "The Alternative Board". The one in the Phila area is run by very accomplished and experienced business people. It is like getting a coach, mentor, and a sounding board all in one package.

Another avenue would be to check with your local Chamber of Commerce, any non-profit Regional Business Development untis, or the SBA for recommendations. Avoid profit organizations that will come in and do "business reviews". There are a couple that are very agressive, but are big shams.

Another option would be if you have any Universities in your area with business departments. They frequently have programs to help small businesses

From contributor Je


I'm in a similar position though with no employees and not much debt. I have a good established client base and several contractors and architects that feed me fairly steady work. But I have no specialty, which I believe makes it much more difficult in this business. One week I may be finishing up a kitchen and the next it's a run of custom molding.

Recently I started working with a business consultant to start a plan on how to move my business forward. I think it's an important step as it allows someone outside to come in who has no vested interest. Your not going to get well intentioned advise from someone you know, but a frank and candid look at your business and it's shortcomings. I still have a long way to go towards getting to where I want to be, can't turn a ship on a dime! But I feel as though I'm making small steps towards changing the way I look at the business.

I also would encourage you to look at your local SBA as they usually offer a good amount of free advise! It's generally from older retired business people who donate their time.

good luck,
jeffD

From contributor No


Evan,

It would probably be a good idea for you to post a few pictures of your work so we can see where you fit in the food chain but probably not so good posting a link directly to your website. Or maybe a better idea would be to post the link on threads that have more of an uplifting message.

We are your peers but you also need to pay attention to your customers. There is no advantage to you of having a public discussion of your trials & travails unless you are Paul Downs and at least get some free branding from ongoing articles in the New York Times.

One thing the business consultants will tell you is to develop a SWOT analysis for your business. This acronym stands for Strengths-Weaknesses-Opportunities -Threats. It represents a balance sheet of your company's ecosystem. Juxtaposing opportunities with threats or weaknesses with strengths can sometimes produce what is known as a twofer on that balance sheet.

You want to move the discussion out of the realm of Pollyanna and into things that are actionable. I really like the white painted work in your portfolio. That's the marketplace I live in. Budget is usually not the problem in those projects as much as getting decisions. Focus on what your list of questions are and what the allowable answers are. Allowable answers are key because if you frame them right they can provide triggers that cause activities. If there are four different ways to develop frieze and crown molding then explicate that in a way the customer can understand it. From the warm & fuzzy move more to the specific. A warm & fuzzy photograph shows what the options ware but when attached to a CAD file gets clear marching orders. The distance between top of cabinet door and start of parting bead can be a point of contention for some designers & architects. You need, in this case, a way of demonstrating how a larger reveal here can mitigate an out of level ceiling.

Start big > work small. Break it down into small pieces then standardize, standardize, standardize. Standardization is the application of best practices. Since all your profits reside in the same bucket at the end of the year gains you can make out of the front end will be equally as viable as gains your CNC lends to actual production.

Small gains have huge impact on low margin industries.

From contributor Ev


Thanks all for the advice, I got in touch with our county's Small Business Development Center, and had an experienced business consultant on the phone within a few hours..for free! He is wise and honestly interested in our success. We will be having weekly phone meetings until I have a solid business plan implemented.
Nostanonymous, thank you for your concern, but I have nothing to hide from my customers, on the very remote chance that they do read this forum. Look inside any small business around you, and you will find similar struggles. We are not going anywhere, and I stand behind our contracts.

From contributor no


Evan,

I am not suggesting that your business has anything to hide. I am merely commenting that your business has nothing to gain by publicly associating your corporate identity with these struggles. You never know. There might be a customer comparing your company with another and this could be an incremental advantage in a low margin industry.



From contributor ca


Evan

Best thing we ever did was study factory cabinets and standardize basic things.

One of the most important things I thing we did was choose Blum hinges, ball bearing guides, etc. and stopped buying the different manufactures and stuck to one manufacturer. Next was something like stiles and rails for face frames. Always 1 1/2" all around, wall cabinets 2" with crown, or more.

Then with this in hand, we could set a metric to always look @ work and say, this is an extra or this is way out and it is custom. There is truly nothing wrong with making lots of different products in your shop. What is wrong, is the lack of engineering from the office and lack of capturing the cost in the estimating stage. Get away from just throwing out a number, actually study it and get a fixed cost. This will help you a lot.

"I have been building custom cabinets for about 10 years now." Read the 5th word over and over until it hurts. You should remember that it costs extra and you need to make a good profit and eventually the debt will be just like the work, part of the territory.

From contributor Pa


Evan - I think you have done the wisest thing, which is to ask for help. And I wouldn't worry about sharing that you are trying to find direction for your business. Customers care whether you delivered the quality they expected at the price you agreed to, on time. Nothing else. Having a regular discussion with a knowledgable person who cares about your success is going to be enormously helpful. One thing: a single source of advice is good, multiple sources are better. When you engage in a relationship with a mentor, you are subject to the strengths and weaknesses of that person. I found that out the hard way with my partner, a man who had a lot of good advice for me, and a lot of advice that was not a good fit for our situation. I never double checked what he told me to do with anyone else, and that was a mistake.

My own business really started to get better when I had the opportunity to write about it. The act of sitting down and describing my problems made me think about them in a whole new way. Since you seem to be an articulate person, you might also get value by writing a short synopsis of your problems for your coach, and then a follow-up afterwards so that you can process the advice. Or maybe not - writing isn't for everyone.

Two years ago I joined Vistage. Now I have a mentor (my group chair) who I can speak to about issues, and a group of fellow business owners who can also weigh in. This has been really, really good. Multiple perspectives, from informed, experienced people, are better than advice from a single person. Your business needs to be of a certain size to join Vistage, and it isn't cheap (about $13k/yr) but I have found it to be well worth the money and time.

I was exactly where you are 12 years ago. Now I am in a better place. The whole journey is too long and complicated to recount here, but if I have to recap in two sentences, here they are:

1) Get Help

2) Find a product you can make and promote, and specialize in that. I did very well with dining room furniture for a long time, and now we do conference tables.

Good luck!

From contributor pa


Evan

I think that 90% of business success is the business you pick to go into. With that in mind I would pick a specialty that is known to produce profits. As you said this requires an advanced economy i.e. one that will support specialization.

I would steer clear of professional consultants as they are expensive and ime are not likely to be worth the cost by a long shot. I have heard good things about the groups that advise each other through an organization, but you are not big enough to afford that. I also think that a lot of their success comes from the fact that the owners at that level are unwittingly in an ivory tower of their own making surrounded by yes men, they become addicted to admiration. The point is that when you boil it down, the essence of success, is the willingness to communicate, as Paul demonstrates. Cabinetmakers are notoriously bad at this. I think you will get good advice on this forum, except from Mr. Nostrils. (8^(l)

This is one of those the question is the answer type things, you have to find out what the niche is. The key to this is to Look around and find out who is making money, look at your invoices and find out what jobs made money, look at the demographics and find out what is going to be needed. This is why healthcare has been strong for so long.

Once you have the goal, it is another one of those the question is the answer type deals. Starting with what can you sell, selling is infinitely more important than all the rest. Yet cabinet makers are notoriously bad at this. The older ones will say we just used word of mouth. Word mouth works fine as a rising tide floats all boats at a higher level. But we donít have a rising tide any more. So choose carefully.

The organization part is basically reverse engineer the goal.

Below that what is your mission or purpose.

Below that is your policy. This is what keeps everybody on the same page. A bit of a test is that when you have conflict you will find out that some policy has been violated. This is where a worker will say thatís not right, the other worker will say well thatís the way we did at the last shop I worked at. This should be documented and made known ie it does not sit on a shelf. Whenever you have a problem and you come up with a solution, that solution now becomes policy and is made known. When discipline is required you make the rules known And the penalties known. If you shirk on this then the rules will Not be followed or trusted. If someone comes to you repeatedly trying to get you to do their job for them or decide everything for them, you put in the policy that if they come to you they better have a suggested solution. But the worst of all is no policy as that forces the worker to make his own.

Below that is schedules and targets. Not the least of which is your breakeven point. It is quite common to manage by the balance sheet which imo is management by looking in the review mirror. I would use metrics that are more current than that. This allows you to remove opinion and rumor from your situation. How many times have you asked so how close are we to finishing this job? Almost done, when in fact it isnít even close. Or how are sales going? We have this big order in the bag, which falls though more often than not. You cannot make good decisions if you do not have good information. Bottom line is if you want to manage it, you have to measure it.

I would measure your own skills. If you are not good sales then get good at sales. The other thing I would do is take a course in logic this will change how you look at things and make your decisions easier.

As always the key is control. If you cannot sell you cannot control a customer. If you cannot make a profit it is because you cannot control a business. You get control with education (not the formal type)

From contributor Ev


Paul and Pat- you have touched on the key question: Are we selling the right product?

If you look at custom cabinetry from a businessman's perspective, it's a wonder anybody does it: Long sales cycle, low margins, high overhead, high cost of labor, dwindling skilled labor, high overseas pressure, etc.

Most of us got into it because we love woodworking. But at this point in my life, with a family to support and kids to send to college, I just want a modest and reasonably reliable income.

We have sold some RTA cabinetry in the recent past, and made a decent profit on it. I've considered going that way, but I don't like the limited control that I have over the outcome. When the vendor inevitably fails, or something is damaged in freight, we disappoint our customers and I hate disappointing our customers.

I'm considering quitting the custom work, and developing a line of semi-custom cabinetry. Build a showroom of cabinets, with a nice color brochure and a limited selection of doors and colors, and a library of cabinets that are ready to plug into the CNC we already have.

My new advisor gave me some homework: "come up with 10 products that you can make on your CNC router". His real motivation for this exercise was to come up with a second revenue stream to fill in the gaps of our problematic cash flow. But maybe that could ultimately lead to our new business plan based on "Something We Can Sell".

From contributor Mr


Pat Gilbert,

If you would be happier if I didn't weigh in on these forums I can accommodate that. You might have an easier go of it if all you had to read were things you agreed with.

From contributor pa


Gees and I even called you Mr., take a chill pill.

No, I enjoy busting your chops. And have learnt plenty from you as your expertise on Lean and your writing skill make you worth reading.

I guess my general thinking about Lean is that it is better suited to bottom up and the shop floor.

But you do need top down thinking as well and I don't think that Lean lends itself to this. IMO a SWOT analysis is not adequate to get a handle on this subject.

I had this argument with Paul Akers a while back. He said when you fix what bugs you, you will come up with marketable products as he did with the Fastcap covers.

My argument against that is that it depends on luck. I do not espouse luck I espouse look. Which the SWOT is but does not go far enough.

From contributor Ji


Look. Pat, that is really good.

A story of overlooking.

On our upholstery side we were focused on residences - a sofa, 6 dining chairs, 2 wing chairs at a time. Every now and then a "commercial" job would come in - 70 church seats, 50 bar stools. The margins were tighter percentage-wise, but the nominals were bigger. And we kind of liked the batch work - one set up, one delivery, etc. But for too many years we didn't see the opportunity - didn't look any deeper.

Upon looking, we found the "commercial" work was a gap that the other local upholstery shops weren't pursuing. The big refurb companies had the mega-corp/institutional market sewn up. But we are surrounded by smaller offices - medical/bank/law/funeral/hospitality - that need to facelift their stuff. We're stepping into that gap with everything we can muster.

And now the residential ones-and-twos are 'looking' rather lame. (and I shake my head at having not noticed what was right under my pencil).

From contributor Jo


I am very much in the same position as Evan. I started my shop 6 years ago assuming that because I could build cabinetry I was qualified to run a cabinet shop. I quickly discovered that there would be quite a bit more than that involved.
After a couple of years of burning the midnight oil I decided that I had had enough. I really had no clue where to go but I began reading whatever books I could find recommended on these forums. Since then we have really defined, redefined, and streamlined our processes and I have hired 2 employees. (E Myth, and The Business of Woodworking were by far my favorites.)
We are, however, still very far from where I need to be. Many of my clients are contractors who take whatever work comes their way. In turn, they pass that work to us and we wind up doing everything from reception desks to residential furniture.
And now my question- posed to anyone who has made the transition from a "we do everything" style shop to a shop that has found its niche: How did your clients handle your transition to your specialized niche? Were your clients upset that you would take some of their jobs and not others? Losing existing clients is a big concern of mine since they have been my bread and butter for years. I would love to know what your actual situation looked like as you were phasing out certain activities.

From contributor Ev


Jim, how does one uncover these "gaps"?

John, in our market, I can say "no thanks" to a job, and maybe suggest an alternate, and there are 10 shops who would happily and competently fill my absence.

Yes, contractors do like a one-stop-shop, but they like low prices even more. If you are specialized, you can do your work more efficiently, and they will come back when they need the work that you are best at.

I think specializing is more about marketing than choosing what projects you accept. If you shift your marketing to bring the customers that want the work that you want to do, then you don't have to apologize to anybody.

From contributor pa


Doing this sort of work because we love it fits into the mission part of the business, the point is that it is secondary to the goal. If your goal is to support a family then your love of woodwork is secondary to your goal of a family. Whatever your goal becomes it has to be in agreement with the purpose, if not you will continue to be disconcerted. Besides once you grow you will not be doing any woodworking any way.

Picking the goal is a result of looking.

For me I looked at invoices for the previous few years and determined that I made the most money on store fixtures. I also looked at why this was. I look at the main purpose for woodwork above the commodity type work and determined it was when it was used for promotional purposes, store fixtures, trade show exhibits, and high end houses (owners promote themselves through their house, similar to their car), hotel lobbies. This is because the customer considers your work as an investment that will make them money.

I would also look at demographics, who in your area is making money, is the area growing or shrinking.

I have to mention that woodworking is notoriously hard to make money at. Look at what percentage of woodshops go out of business, look at what percentage of electrical contractors go out of business.

If you really look around what you should do will hit you.

The E-myth is a great book and fits into the policy portion of a business as it helps people know what their hat is and who does what. The truth is the difference between a big company and a small one is the ability to establish the departments to do the different functions, a small one heaps too many functions on one guy (you). At a minimum you need 2 one driving work in and one driving work out.

Another touchstone I look at is control, I mentioned this before but control is everything. When you cannot control when you are going to get paid it will create problems, if you cannot control your workers that is a problem (e-myth), if you cannot control your sales youíre going to have a problem. Control is a good way to find where your problems are, in other words just look for areas that you lose control. This will be where people get upset, Paul Akers says fix what bugs you, which is a mild form of upset. Another way to look at it is control = prediction. If a car does what you predict it will do you donít give it a second thought, but if it wonít start or breaks down you did not predict that and it is upsetting. If you cannot predict what your goal should be, at the least it is disconcerting.

From contributor Ji


Hi Evan,

I can't say that I have a formula for it - so can only convey what I did. Pat's "look" hit it.

It started with the financials. I already knew that the gross margins on the projects were lower in percentage terms. But in the months we did them, our top line was bigger and bottom line. Nominally and percentage wise. Duh - in those months we were operating further above our break-even point, more stuck around the further we got from the fixed cost nut.

So looking at the projects. Specifically, how did we get them despite not being in the market for them - except generically as upholsterers. We called the contacts up and asked how they found us, what they were looking for, what they found, and why they picked us. 7 of 11 said, "online", "someone to reupholster our [xxxx], "just upholstery shops like yours" and "your site looked like you cared and you answered the phone".

Strong messages. So I looked more, searching the web for the phrases they gave us and looking very strongly at the results. Clicked on everything in the first 3 pages. Looked into the site code to see headers, keywords, alt tags for clues about what they were targeting. Made a grid of phrases, titles and slogans they used. Then I looked at the big boys - the corporate interiors guys. What were they doing that the local shops weren't? Targeting rather than hoping if they threw in the word "commercial" people would get it. They were very specific - work walls, conference room, auditorium.

I picked the 5 leading local contenders and called them up as if I was shopping a project. To hear their approach. 3 let it ring through to message. I drove by all the shops, looking.

The gap. The front page contenders all had "commercial" in their content. But that is a trade term. The people searching didn't think "Oh, I'll look for upholsterers doing commercial work! I'm commercial, right?" They went looking for "get reception chairs upholstered" and "student lounge seating upholstered", etc. More specific. Several said they revised their searches with geographic keywords like "Philadelphia" or "New Jersey".

Boom! The big firms were targeting big business the way we smaller shops WEREN'T targeting the smaller local offices all around us. Opportunity. Long-tail keyword research, new web page creation, getting links built, some print matter going. Stepping into the gap.

From contributor La


The first few years I did woodwork, I really wanted to do custom furniture. There were too few jobs and I resorted to doing about anything that came in the door. I was constantly busy but making very little $. I started tracking all of my costs for every job. Didn't take long to see the problems. Did a little promotion aimed @ the more profitable jobs based on my past #'s. I continued to learn ways of doing the niche work more efficiently. And better yet by tracking the true costs. Ultimately it evolved into Making things that most shops can't do profitably or don't like to do. There are lots of cabinet shops around here. Few of them are good at making curved anything. That became our niche. Because we made an effort to be efficient at the curves we became a commercial shop. Few residences around here have a need for much curved work.

Residential work, kitchens etc., is saturated with small shops in this area. It is cheap to get into with a minimum investment so the prices are driven down. The shops doing Euro boxes seem to do better, higher investment, less labor.

Track your costs! It will tell you where to head. Look for ways to take cost out of the process. Excessive handling, walking to get parts or tools, setup time, poor information flow, lack of standards, lack of training: all costs that come out of your bottom line. The customer doesn't want to pay for them.

From contributor Bo


Lots of time we confuse having a lot of work with making money.
You need to know all of your costs before presenting a price ,even more importantly you need to be very specific in quoting
Avoiding any blanket statements such as all cabinets included, all solid surface tops etc.
You have to plan each step between quote to final punch
Once you actually have a realistic cost add your profit and give your price do not come down unless you built that in for negotiations

If the shop is busy and your broke it dosent take a genius to figure out your doing work for free

From contributor oz


Evan,

I am about 10 years too, Now i am fully screen to machine automated two part timers. located NYC no overhead, no dept.
i start making profit after 7 years.

Business management is totally different than how to make furniture it is how to make money !

if you have on going business that have business plan or non business plan.
or business is just a flow

a-Find the way to lower your operating costs,

b-Make your math and see how much overhead you have a month?

c-Add that overhead to the your prices. and try tune it with a monthly basis.

if you doing too many different furniture you have to find the way to do it as making of one type of furniture spending time. pluss increasing the quality of your product.

Time is important faster you make the your furnitures it will give you more time to thinkering to make more money. you will work less and less and you will make more and more money.

jack up your prices !

Trust me

Ozan.