The Great Recession taught the industry an important lesson — it’s important to diversify a company’s products and services.
After the wheels fell off the wagon in the fall of 2007, the turmoil and contraction forced many pool builders to rethink the way they had been doing business. As an industry, we saw the dichotomy between being a pool builder who happens to be a businessperson versus a businessperson who just so happens to build pools.
Many builders who survived the recession were hedged by a balanced business model, plus a lot of luck. They learned to diversify their product offerings as a way to insulate the company against future fluctuations in the economy. On the other hand, a lot of construction-only pool/spa builders found out the hard way that they had all their eggs in one basket.
A few of the more popular ways to diversify a construction-only business is by adding a service department or retail store. There are pros and cons to venturing into each of these categories. In this first of several columns, I present an overarching discussion about these options.
Service insulation
The nice thing about a repair or service department is that it stands on its own, no matter the fluctuations in the economy. Once the pool is in the ground, somebody has to take care of it.
In addition to being more recession-proof, a service or repair department provides more consistent, predictable revenue. In construction, there’s really no definable revenue stream — at any given point, you may not be certain of what’s in the pipelines from a work standpoint. On the other hand, the swimming pool service industry is littered with individuals who have made a living off of cleaning pools on a weekly basis. These accounts supply a steady and reliable revenue stream, while also setting the stage for add on-sales.
This allows you to more easily set up budgeting and forecasting, which are key ingredients to successfully steering a business. You know what’s in the pipeline, you know what you can depend on, and you can plan accordingly. It’s a more manageable, less stressful lifestyle.
Some builders look at service and repair as just a necessary evil. But these weekly maintenance accounts can become the keystone to a business model that promotes synergy and repeat business without solicitation of the customer. If operated properly, this department could be the bread and butter of the company and the key piece to building a revolving door of business between the different departments. At the very least, a strong weekly maintenance department sets the stage for the equipment repairs and seasonal add-ons that these new clients will need.
Builders also may want to consider adding what Memphis Pools calls a mechanical service department, which performs repairs, as well as pool openings and closings. If done correctly, a mechanical service department can be highly profitable and bridge your construction and weekly maintenance departments. With a customer list of prior construction projects in your possession, a pool/spa builder could quickly solicit repair work and be on the way to launching a new department. Ultimately, a weekly maintenance department should go hand-in-hand with a mechanical service department, just as a remodel department matches up closely with a construction department.
In my consulting work, I see another common misunderstanding: That it’s hard to make money in service. That’s not necessarily true. Opening a service and/or repair department takes very little start-up capital. Because these departments conduct much of their business outdoors, it only takes a small office space, a few vehicles and less than $500 worth of tools to form a new department.
With that said, operating a service department is a completely different business model than construction. So it takes time and deliberation for a builder to figure out the processes for establishing the metrics that show whether you’re making money. Additionally, the technical knowledge, including hydraulics, electrical, chemical mixed in with a healthy dose of mechanical skills, is a must.
Hanging your shingle
Then there is another revenue stream to be had: Retail stores.
For a builder, venturing into retail can be the trickiest endeavor. Not only must you learn a new business model, but you must do so in an environment that continues to change because of the internet. When people approach me for help with retail, they often hold to the swimming pool superstore model, like we saw in the 1980s and ‘90s, with product offerings dominated by chemicals and parts. But as the industry has adapted to the internet and big box stores, specialty retail rarely comes in the superstore model. It takes products that aren’t easily bought and sold on the internet to sustain specialty retail. Chemicals and parts are just a piece of the puzzle. Hot tubs, saunas, patio furniture, high-end grills and outdoor kitchen equipment have become the staple of most successful specialty retail stores.
Some well-established builders assume that, because they have a long list of customers accumulated over decades of construction, opening a store and generating traffic would be a no-brainer. But retail involves plenty of measurables to consider, such as weighing the extra money of a prime location against the added budget of a significant marketing campaign.
There is an extreme amount of focus needed to establish and operate a successful retail store. There are potentially high start-up costs but, if done correctly, a store could become not only a profitable new department, but a very valuable tool for growing the other departments in a swimming pool construction company.
One last factor to consider is the complexities of how the organization will change when expanding into different categories. The dynamic of the entire organization changes with the addition of departments. Company culture should be closely measured and evaluated when making the decision to expand.
Starting a new department while maintaining focus on the core construction business often creates the need to hire more personnel. With new employees often comes new internal challenges stemming from office politics. Sometimes an HR department is needed to handle the onboarding, education, payroll, compensation packages, and corrective action processes for employee management. And, of course, employee recruiting and retention is perhaps the biggest roadblock for growth in our industry.
Learning a trade and becoming proficient enough to achieve professional status takes intense focus, education, drive and perseverance. Becoming successful in a new endeavor will take the same level of energy. A firm business plan should guide the new endeavor while taking into account existing business. This ensures that the new department adds to the top and bottom lines of a P&L statement instead of simply replacing existing revenue streams.
Over the next several columns we will discuss in-depth how a construction-only business can successfully blossom into an entity capable of withstanding a sometimes volatile economy.
