Three Point Group Blog
- Our prices were too high. Revising estimating factors including production rates, markups and margins is essential and will reduce gross margins. But this is precisely the gateway to gaining sales and market share.
- There was too much waste in production. Implementing GPS and integrated work order scheduling software is becoming essential. It reduces wasted hours offsetting some of the gross margin loss in estimating. Of course, it is not free requiring an investment in information systems.
- Sales were generated primarily by referral. Customers came to you. Adapting big company sales and marketing strategies can increase sales volume further offsetting the effects of declining gross margins if/when volume grows faster than overhead cost. Again this is not free, but neither does it require the type of fixed cost investment that information systems require.
Fundamentals Series
Number 3
Velocity and Pace
A successful owner manages the velocity or pace of their organization. He or she must be prepared to upshift (i.e. increase sales, pricing adjustments, collections) or downshift (i.e. cut spending, quality control, manipulate crew size) the focus of the organization at any moment. This may involve contract reviews, employee one-on-ones, group planning meetings, or even organizational changes. Interpretation of timely and accurate data against goals, plan or budget creates accountability and thus a forward looking mentality. This approach “bucks” the norm as most owners and managers tend to review historical data or have “rear view mirror” approach to managing. Take action! Use the following reports/tools to help manage velocity and pace in your organization.
1. Labor report with realized rate
2. Sales pipeline report
3. Rolling budget
4. Account manager status log
Number 2
Winning
Lombardi believed that winning started with the right mindset. “All the talent in the world cannot make up for a losing mindset”, he explained. He often felt he was misquoted when he said, “Winning isn’t everything, it’s the only thing” because to many it seemed to suggest victory at any cost. “What I mean”, Lombardi said, “is that there is no other purpose for which we play the game - than to win”.
Running a business and making money starts with the right mindset - the mindset that anything but making money is not an option. Those who live and breathe their numbers, make the sacrifices and hard decisions to correct problems, and hold people’s feet to the fire create a charisma about themselves which moves everyone on the team. Some of these people even get referred to as “the old man” just as Lombardi was.
There are people like this in the industry. Their companies routinely make top profits. Yes, you need systems and processes, but without the winning mindset…
Read More: “The Lombardi Rules” 26 Lessons” - by Vince Lombardi Jr.
http://www.amazon.com/The-Lombardi-Rules-Lombardi-The-Professional/dp/0071411089
Number 1
Fundamentals
Last week I made calls with salesmen in the field again. I was reminded that while many are good, most can improve their methods and results. While your people tell you they are doing all the right things, when you actually observe them they are often not doing it as effectively as they might.
Everyone needs a coach. Coaches observe, give feedback and work on the fundamentals. I recently read “When Pride Still Mattered” (A biography of Vince Lombardi) by David Maraniss. I thought I would read a football story. Turns out I got a lesson in management. It’s true Lombardi is a legendary leader. But at the heart of it – he was pure manager. One of his methods was to grade each player everyday and provide specific feedback and teaching to improve his skills. Lombardi said it best, “I am a teacher of men. If I teach them well they will win.”
Here’s a link to the book. It’s a worthwhile read.
http://gopackers92.fortunecity.com/fvincebook.htm
Innovation
By Kevin Kehoe
Everyone talks about innovation as if it were something that can be managed, when in reality it is primarily the result of experimentation in the face of adversity. In other words, most of the time necessity is the mother of invention.
For a seemingly low-tech industry, the landscape business is experiencing extraordinary levels of innovation since 2008 primarily driven by adversity in the form of economic imbalances in supply and demand in the commercial real estate market and unemployment and housing prices in the residential market.
Yet with all this adversity - by hook or crook – innovative landscape companies have not only survived, they have prospered. Industry performance benchmarks clearly tell this story of innovation. Consider some of the following benchmarks we once accepted as conventional wisdom and the magnitude of the change in such a time.
Pre 2008 benchmark for sales growth: 25% 2010 benchmark: 10%
Pre 2008 benchmark Ground Maintenance Gross Margin: 55% 2010 benchmark: 45%
Pre 2008 benchmark Design Build Gross Margin: 50% 2010 benchmark: 40%
Pre 2008 benchmark Bid Build Gross Margin: 35% 2010 benchmark: 15%
Pre 2008 benchmark Overhead Leverage Ground Maintenance: 2.35 2010 benchmark: 2.65
Pre 2008 benchmark Overhead Leverage Design Build: 3.10 2010 benchmark: 3.50
Pre 2008 benchmark Net Margin Top 10%: 14% 2010 benchmark: 10%
Pre 2008 benchmark Annual Sales per Salesman Ground Maintenance $500,000 2010 benchmark: $1,000,000
Pre 2008 benchmark Annual Sales per Salesman Design Build $1,000,000 2010 benchmark: $2,000,000
Pre 2008 benchmark Annual Sales per Salesman Bid Build $2,000,000 2010 benchmark: $4,000,000
Pre 2008 benchmark Annual Sales per Account Manager Ground Maintenance $1,000,000 2010 benchmark: $2,000,000
All these gains in performance were driven by a simple necessity – the same impetuses that drive everything in our wonderful capitalist system: (1) providing a quality product to the customer at a more attractive price, and (2) getting more productivity out of our primary assets – people.
Price:
Providing the customer with a more attractive price requires innovation in several areas: estimating, job hour management, and sales. The facts are:
Market innovation requires focus and simplicity. In today’s market being everything to everyone ignores these two cardinal principles. Take the case of a mid-west grounds maintenance company that executed these price related strategies.
Their first step was to redesign their estimating system to drive pricing down in their core services: mowing, enhancements and snow. The net effect was to consciously choose to bid work at lower gross margins to increase sales close rates. From 2008 to 2010 while gross margin fell by 5 percentage points sales close rates increased from 15% to 22% helping volume offset gross profit dollar shrinkage.
Step two was the installation of an integrated work order/schedule management software system. The net affect was to reduce labor hours per job and indirect labor hours in total. From 2008 to 2010 sales per production hour increased by 5% while indirect hours fell by more than 30%. While this did not offset the price reductions entirely, it certainly buffered them.
The final innovation was hiring a sales professional and reorganizing internal staff dedicating an operations person to measurement and estimating thus freeing up the sales person to – sell. Combining this investment with investments in a CRM pipeline software and a marketing story promoted via email blasts and web blogs increased bid and close volumes in excess of 2010 goals.
In less than two years, this company grew from $2.1MM in revenues to $3.4MM. The big win was net profit, which increased from 5.1% to 10.7%. Management understood that the old way was a recipe for failure.
People:
Getting more productivity out of your people requires innovation in several areas: job tools, compensation and staff composition. The facts are:
Most managers and supervisors act out of habit and narrow assumptions of cause and effect relying on the “same old solutions” to now very different problems. It therefore becomes essential to produce daily reports using numbers instead of “feel” to make decisions. The result is immediate cost savings instead of deferred problems.
The industry pays too little and “expects” too much from people in key positions. I am not suggesting your expectations are wrong for performance, I am saying however that we too often hire a 100 horsepower engine when we need a 200 horsepower engine to pull the load. The only way to change this is to pay more per person and have fewer people in total. While this costs money in the short run, it reduces costs in the long run.
Finally, most people are most effective in a single sphere of their jobs. There are four spheres of job capability: management, sales, operations, and administration. Asking one lower paid person to perform more than one of these roles highly effectively is usually a recipe for low productivity. Specialization coupled with higher compensation schemes pay off.
Like market price, asset productivity, too, requires focus and simplicity. In today’s organizations everyone doing everything ignores these two cardinal principles. Take the case of a southwest grounds maintenance company that executed these people related strategies.
Their first step was to design several simple reports for each key manager/supervisor to use everyday. For example a field supervisor can look at a report to help him quickly determine labor needs by route, by crew and by job two weeks in advance at the same time highlighting jobs where hours exceed budget and formulating a recovery plan. As a result from 2008 to 2010 while pricing fell by 10%, gross margins declined by less than 2% on base contract revenues.
Step two was to change the compensation plans for sales and account management people. By developing a senior and junior account management job they were able to recruit experienced talent from competitors with a combination of higher base and commissions based on the expectation of managing a book of business 40% larger than a less expensive junior level account manager. As a result, overhead costs in relation to revenue has declined, turnover is near zero percent, and junior people get hands-on job training learning from the senior staff.
The final innovation was to align job descriptions with talent and focus each job on simple primary objective like new sales, up-sells, retention, hours or safety. The results are that people have more time to invest in their primary functions improving personal results. The biggest payoff was in customer retention rates, which in comparative dollars increased from 85% to 92%.
Since 2007, this company grew from $7.5MM in revenues to $8.9MM with net profit increasing from 3.1% to 8.7%. While these changes were not greeted with overwhelming happiness at first, people can barely remember the days when it was anything other than it is now. That may be the most wonderful aspect people; their uncanny ability to adapt, especially when they see their lives and pocketbooks improve.
Would these companies have innovated as they did without the economy going south? Yes, probably in the long run, but certainly not at the accelerated pace they did. The real lesson is that innovation is not the child of brilliant ideas, but the province of hard work and clear thinking born out of adversity.
Three Point Road Map Business Strategy and Execution
You may have a strategic plan, but this doesn’t mean you have a strategy. A strategy does one thing – it increases enterprise value. Enterprise value is the financial worth of your business, and is calculated by multiplying EBITDA by an EBITDA multiple. Your strategy must address this simple mathematical reality. The only way to achieve this goal is execute a competitive advantage in three key areas – customer, organization, and systems strategies. And if you haven’t recognized it yet, the business platform upon which you are standing is burning. What worked in the past WILL NOT work in the future. You need a new strategy. That’s where our ROADMAP comes in.
HERE’S HOW WE DO IT…
Step 1: Determine your current enterprise value
Step 2: Compare your business performance to critical high performance customer and revenue benchmarks : average job size, retention, bid/sale volume, sales price/avg. wage rate
Step 3: Compare your business performance to critical high performance people and organization benchmarks : staffing/sales volume, sales/sales staff, performance pay dollars/base pay dollars
Step 4: Compare your business performance to critical high performance operation and financial benchmarks : budget hours/actual hours, shop cost/revenue, GP margins, NET margins
Step 5: Project future winning valuation for your business
HERE’S WHAT YOU GET…
· Current Business valuation
· Three year financial and operation plan to get to your number
· Detailed comparative benchmark analysis with key recommendation
· Strategic business plan with step by step execution plan and timelines
HERE’S HOW IT WORKS…
1. Sign up for our RoadMap program
2. Provide us with information per our Roadmap Prep List
3. Conduct conference call on your valuation and benchmark results
4. Meet with 3PG Team (Frank, Jeff, Kevin) for 1.5 day work out
5. Receive final strategic project plan
WE HELP YOU GET REAL AND MAKE THE TOUGH DECISIONS TO ADDRESS THE BURNING PLATFORM AND THE GAP BETWEEN CURRENT AND FUTURE-ENTERPRISE VALUATIONS
Whether it is sales growth, profit improvement, acquisition and/or finding the right buyer for your business, Three Point Group has the answers to your burning questions! With over 100 years in industry experience working with over 300 of the country’s top companies, we are experts in helping you get off the burning platform and make the right strategic moves to increase your enterprise business value.
$15K all included for the valuation (basic), projection, benchmark report, strategic plan and 1.5 days onsite with expenses included
Be prepared!
In our travels around the country, it has been pretty much the same story – new construction is way down, services however, shows some stability. Unemployment in construction hovers around 24%, upper end residential, public works (stimulus driven), and institutional markets remain active even though prices are estimated to be off 2008’s high by from 10 to 15%.
Certainly not what we wanted to hear, but there is activity and where there is activity there is opportunity. This puts the ball squarely in our court – we are in control – our ability to plan and to execute will prove to be the linchpin of our success.
If we haven’t already, now is an opportune time to put our planning hats on - mid
summer when from a strategic standpoint you will be addressing two important issues on our plates:
1. Updating and revising the plans for the current year
2. Creating the strategic initiatives for the coming year
First to the issue of revising this year’s operating plans. We have a rolling budget which looks at the twelve months of this year by month. We are at mid-year, so we should have 6 months actual performance plus the remaining 6 months projection, updated for how we see the year completing. Take a hard look at the second six months – make sure that the results we expect are reasonably achievable and not only possible in heaven. This updated picture is probably the best ‘early return’ of the year end results we can generate.
Reason why? If we are maintenance, we know what is renewed, what is sold, what is likely in the pipeline for starts in the next 4 to 5 months – we also know the enhancement activity which is likely to finish the year. If we are installation, we have our backlog and our pipeline for what is likely to be signed for job starts in the near term. Follow the same process for revising our direct cost and overhead expectations. If our information is solid, we can anticipate our year end results to within a surprising degree of accuracy. Now how good is that?
If we do not like where we are slated to end up, change course! We have 5 to 6 months to make a difference. If we like where we are headed, make sure everyone on the management team is plugged in and make it happen. Oh, and now is also a terrific time to take the first look at year end tax planning.
Our second responsibility is to take our first pass at the game plan for next year. Now this is not so much a detailed numeric preparation, but rather a strategic session where with our management team we will want to address more weighty issues such as targeted growth (sales goals), pricing adjustments, organizational changes, capital wish lists, policies governing payroll – wage and benefit adjustments, cash flow and banking and major calls on capital such as debt reduction, expansion of or to new facilities or perhaps even an acquisition.
Get your heads around the 50,000 foot view of next year. Key to that is establishing the pricing structure for 2011 for its selling season is about to start if not already. Sometime around the September / October time frame, we will want to document those strategic plans we made with a more detailed picture in numbers.
The message here is plan, plan, plan. Look at every eventuality and get prepared for the 50 year flood. Be a Boy Scout (Be Prepared) and make sure there are no surprises.
Managing your Salesmen
By Kevin Kehoe
Developing a sales machine is the most important investment a landscape contractor can make in his business. Given pricing conditions and the negative impact this is exacting on gross profit margins, generating increased revenue volume is necessary to achieve net profit dollar goals. At the heart of this revenue generation effort is the salesman. They have never been more important and the management of the sales force never more critical.
Since the sales game is a tough one and lack of success can cause even the best to get in a slump, keeping your sales staff motivated is essential. The primary motivators are (1) a need for achievement, (2) a desire to get better, and (3) the opportunity to make money. To produce these motivators a sales manager should employ the classic carrot and stick approach.
Carrot
Goals and commission programs provide the carrot. Goals should be set weekly for number of sales calls, monthly for the dollar value of bids required, and quarterly for every quarter for closed revenue volume. Software such as Excel spreadsheets, SalesForce, Method, ACT and others can be deployed to manage this process. In my experience most managers set goals too low. Low goals provide little pressure, and most sales people are motivated by pressure.
Commission plans are essential. A successful salesman should be the second or third highest paid employee in the company. I prefer a first year 60/40 base/commission structure graduating it by the third year to a 40/60 with unlimited upside for the salesman. In addition I like contests where there are non-cash rewards. One company, short on revenue through August, challenged the salesman to get the company back on budget. He did and the company rewarded him with a big screen TV - as promised. It was a one-time event. Salesmen are motivated when there is something at risk. When pay is guaranteed, I don’t think they run as hard.
Stick
Dashboards and coaching provide the stick. Most contractors do a good job managing production. Yet they don’t apply this same principle to the sales. Salesmen perform better when they are focused on high return activities. The dashboard is the pipeline report and it is a necessary stick because too many sales people (1) spend too much time selling to people they know and too little to those they don’t, and (2) working on prospects that ultimately have little chance of closing. For example, I reviewed one salesman’s pipeline recently. He had 243 prospects and appeared that he had enough leads to make his number. Upon closer review it became clear that only 10 - 12 of these would likely close. He needed to spend more time developing new leads to get back on track.
Salesmen need feedback. Every good salesman has had the experience of wishing they had been quicker or smarter at some point during a call. Making joint calls and engaging in post call “curbside chats” applies the stick gently and motivates them to become better. In working with salesmen I have discovered some typical bad habits that can be easily addressed by this method. These include (1) talking too much, (2) not asking the right questions, (3) arguing with the customer, and (4) failing to ask for the business and get a signature.
No salesman is immune to these behaviors. Some years ago in an important sales presentation, a customer actually said to me more than once, “Kevin, ask me if I want to sign this contract.” Apparently I did not hear this and proceeded to provide him with proof and testimonial to my wonderfulness until he finally became adamant. He said. “Ask me!” At this point I said, “Would you want to sign this contract?” He said, “Yes. Now let’s talk schedule. When can you start?” I was so busy talking and avoiding the potential rejection that comes with “NO” that I never asked the closing question. It is a lesson I have never forgotten. Salesmen require the coaching stick.
The best salesmen, in my experience, are hard wired for the job. This is not say that someone cannot be taught to sell, but all the training in the world does not replace a natural predisposition to the task. Salesmen at their best are capitalist athletes. They like to win. At their worst, when they are not winning, they are high maintenance time wasters.
