Five Stages of Remodelting Growth

Your Guide to the Five Stages of Remodeling Growth

Going from a one-man show to a thriving enterprise can be tough. Follow these tips to ease your company's growing pains.

By Judith Miller

Over the past 30 years as a consultant to remodelers, I’ve noticed two rules that apply to pros. The first you’ve probably heard of: the 80-20 rule, in which 20% of what you put into a venture yields 80% of the results. The other one, which I first became aware of from a May 1983 Harvard Business Review essay, you likely haven’t. That rule, paraphrased, is that every company can go through up to five predictable stages of growth.
I call my adaption the Five Stages of Remodeling Growth, and just about every client I’ve encountered fits into one of those stages. Your ultimate success depends on your mastering at least stages 1 through 3, and stages 4 and 5 as well should you wish to expand dramatically and/or sell or pass on your company.
Every stage starts with discomfort, moves to a more comfortable state as you resolve challenges, and then evolves back to discomfort because you’ve outgrown your systems. Lots of remodelers confuse solving problems with creating systems­; a system not only solves a problem, it prevents future ones. You need systems to succeed.
Success at every stage requires your company to effectively manage seven functions: marketing, estimating, sales, production, finance/administration, resource management, and leadership. Sometimes the effective manager is you. As you grow, it’s necessary for that job to fall to someone else.
Often, this trajectory of moving up through the business stages mirrors your personal life stages. When you’re young and have a partner and don’t have kids, you can run a pretty good Stage 2 company. Then a baby arrives, and that changes absolutely everything. Your need for growth through the five steps mirrors your need to mature as a person.
And now to the five stages.

Stage 1: The Owner Does It All

This is the classic way a company begins. At this stage, the owner does all the work: markets the company (probably through word of mouth), writes estimates, sells jobs, does the remodeling work, invoices clients, pays bills and, oh yes, carries out the trash.
Characteristics:

• 60-hour workweeks are the norm.
• You start with zero revenue.
• Revenue usually follows a “just-in-time” business model, in which you’re lucky to pay current bills with revenue from your current project. More likely, you’re using the next job to pay bills from the last job.
• Income swings wildly, in part because you’re so busy working the current job(s) that you don’t have time to prospect for new work after your current jobs conclude.
• Accounting and financial management systems are primitive.

Take Note: Technically, it’s possible to stay at this level and be happy, but you need to be the kind of person who revels in 60-hour work weeks and works one long-term, high-paying mega-project at a time—think of a multimillion-dollar home that takes three years to build. And remember, you need to have another multimillion-dollar project lined up to start soon after that job ends.
But if your business model envisions you doing anything else—say, 500 jobs a year at $500 each—you’ll wear out long before you can build a fund big enough to retire on. Virtually every remodeler I’ve met strives to get out of Stage 1 as fast as they can.

Stage 2: The Owner Delegates

Remember that I said every stage oscillates from discomfort to comfort and then back to discomfort? For the typical do-it-all remodeler, the feeling of discomfort—and subsequent need to advance to Stage 2—flares when you take on a couple of jobs that each last six to eight weeks or more and take place simultaneously.
Going from one to two projects may be only a doubling of assignments, but it’s a quantum increase in complexity. You think, “I can spend some time over here or over there,” but you know how often things go awry in organized remodeling, let alone disorganized remodeling. It’s time to delegate.
Characteristics:

• First full-time hire typically is for field labor.
• Administrative help gets employed on a part-time basis.
• You as owner retain sales duties.
• You need more business knowledge, particularly how to define job costs and overhead, how to estimate better, and how to manage time—yours as well as that of employees.
• Better systems get put in place, particularly for lead tracking, job cost analysis, and basic company budgets.

Take Note: For many remodelers, the first delegating of work involves a family member, typically a spouse. This solves a problem, but it’s no long-term, systemic solution unless you pay that person the same wage you’d pay an outsider and unless that person is qualified to do the work.
Making a spouse or child your first employee also can set you up for trouble later because each family has its forms of internal communication—forms that can bewilder non-family members who join the company later. In addition, family dynamics don’t always transfer well to business, particularly if a father who doesn’t brook disagreements at the dinner table thinks those same family members will speak up when the family has to hash out business issues.
Ultimately, a whole bunch of tiny, imperceptible flaws in the creation of a successful company are inflated by hiring family members. There’s business, and there’s family, and they don’t easily mesh.

Stage 3: The Sweet Spot

This stage provides one of your two opportunities to enter cruising speed, a status in which the business is humming and you’re spinning off so much money so steadily that you can build a nest egg sufficient to shut down the business one day and retire comfortably. But if you have bigger ambitions or want to leave a thriving business after you retire, you’re not done yet. 

 Characteristics:

• If you’re successful in this stage, you will be working about 35 hours a week, give or take depending on your personality.
• Selling (and maybe estimating) is the only major function that you’re responsible for.
• All other company functions have been delegated to the right employees, with the right training and skills.
• All employees are trained using company-developed, standardized systems.
• The owner manages customer and employee relations, with high levels of satisfaction in both.
• The owner and company enjoy consistent 60% markups and 35% profits. The firm produces a great product and generates lots of continuing sales through word-of-mouth and a professional marketing campaign.
• In general, every person you add will require tweaking your org chart and systems. By the time you get to six employees, the business has become far more complicated.
• The bigger you get, the more detailed each job’s skill sets become, and thus the more exacting you have to be about duties. The fact that your wonderful bookkeeper works in the office all day doesn’t mean you should count on that person to also serve as receptionist.

Take Note: I think you can hang for the rest of your life in Stage 3 if you get all the functions working properly; if the marketing and sales and production are working well; if you have low employee turnover and consistent jobs and the economy is stable; and if everything is calm and you don’t spend all your money on junk.
That said, and provided you work with a financial planner, you probably can put your kids through college and retire between 70 and 75. A well-run Stage 3 company is a very sustainable practice. It’s not easy to achieve, though. As a consultant, I tend to see the crème de la crème of remodeling firms, and even in that group, only 20% get to and successfully stay in that sweet spot.

Stage 4: Complexity Grows

Generally, there are two reasons why you’d want to go to Stage 4: You want to grow dramatically or you want the business to survive after you’ve gone. If you’re a replacement contractor with visions of your home improvement firm planting flags from Maine to Monterey, it’s clear you need advanced systems. But even if you don’t want to grow dramatically and rather want to leave your company to a child, your goal still is to build a firm in which you as owner only coach, train, and mentor.

Characteristics:

• You are no longer responsible for sales; if you continue to sell, you contribute no more than 20% of the company’s sales revenue.
• Your sales manager produces a steady flow of jobs, sold at the targeted gross profit to the right clients.
• The department heads you manage, hire, and train are responsible for hiring, training, and managing their reports.
• A board of directors manages company culture, expectations, and profits through department heads.

Take Note: Perhaps 100 full-service remodeling firms extant today are operating as Stage 4 firms. First, transitioning to a system in which you’re responsible for less than a fifth of the company’s revenue stream can be a monstrous task. And you have to adjust your personality, too, shifting from doer to teacher. 

Stage 5: The End Game

As in chess, your final moves are as crucial as the first—perhaps even more so, since your objective is victory and not just hanging on. And like chess, you won’t win unless you figure out your strategy long before you execute it. If you can, you’ll achieve what you foresaw, be it a handover to a new generation or a sale that sets you up for a golden retirement.
Characteristics:

• All of the company’s functions, including strategy, are now delegated.
• Planning begins back in Stage 3, when you’ve decided you want to move out of that stage’s cruising speed and go for expansion and/or succession.
• Your focus tends to revolve around three questions: whether the company will continue; how you’ll retire; and how you should measure ultimate success.
• It typically takes years to develop a Stage 5 company—and you can’t skip Stage 4, no matter how much money you throw at it.

Take Note: One of your key questions here is who will succeed you in running the business. If it’s one of your children, do they have what it takes? Keep in mind that if you were a Stage 3 success when they joined, they won't have the school of hard knocks experience you endured. They’ll be missing an organic understanding of why the company works. That isn’t necessarily a death knell, but it will require that you work extra hard to put systems in place. Those systems are the key to getting your company to this level.
No matter what innovations come to the remodeling industry, these five big-picture stages are timeless and predictable. Your company will follow these if you don’t realize it—but like most things in business, you’ll be most successful if you do so deliberately.
So how to get from Stage 1 to Stage 5? First, identify where you are, and where you want to be. Then, take a closer look at the seven functions mentioned at the beginning of the article: Where do you need to focus your attention first to move forward? This approach will help you minimize discomfort as you forge your path through the predictable stages of growth—and keep you moving forward with purpose.

 About the Author

Judith Miller Judith Miller  is a Seattle-based business consultant and trainer, and a facilitator for Remodelers Advantage. jfmiller@remodelservices.com.