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The Business Model: Who Will You Serve and How?

February 12, 2004


I grew up in a family owned mom-and-pop retail operation. Though most of my career has been spent outside that realm, I always knew that someday I would return to the retail business. My intent was to apply many of the new ideas and approaches to selling and installing floors that I'd learned through my extensive travels and relationships within the flooring industry.

My experiences in establishing a specialty flooring store have been profound. Over the course of the articles that I plan to write this year for NFT, I will share many of these experiences and discuss some of the key elements that go into being a successful retailer.

Many of my business strategies have worked well. And many have had to be modified numerous times to accommodate my specific market. One thing I can say for certain is that the pursuit of success in any business requires relentless focus and commitment -- forever.

I believe any good retailer needs to develop a business model. The business model is a blueprint of your market interfaced with the nuances of that market's customers, geography and your ultimate image in the marketplace.

Defining your customer can be complicated. Most retailers often try to be all things to all people. This causes them to lose focus and become mediocre instead of maximizing their profits.

Listed below are several target customers, on both the commercial and residential sides. Initially, you should zero in on who appear to be the customers that make the most sense for your company based on your product offering, staff, geography and the image that you are branding.

  • Residential builder/remodeler
  • Residential/homeowner
  • Commercial builder/remodeler
  • Commercial negotiated

Residential builders/remodelers can equate to lucrative business for you, but it is important that you realize this type of customer often is driven by unrealistic deadlines, hidden agendas and typically will only look out for themselves in the course of problem solving and complaint handling.

It is also important to take into account their sensitivity to cash flow. Your own cash flow can be erratically disrupted if you become dependent on the residential builder/remodeler customer. Price will always be a top priority for this customer regardless of the level at which they play. If you want to do business with them, you should be prepared to meet or beat any price that is thrown at you.

Occasionally, you will find a loyal builder who drives enough volume to allow you to leverage your buying power. These types of contractors do exist, but they are few and far between -- and everyone is out for their business.

You may choose to serve the residential/homeowner market. Existing occupied homeowner space can be an excellent target, but you will find that most consumers are educated, frugal and demanding to a point of frustration if critical details are not reviewed extensively during the selling process. The primary difference between them and the other categories of customer is that you will know exactly whom you are working for.

Working in occupied space becomes labor intensive and extreme care must be exercised to minimize dust, damage or disruption. Working in residential occupied space is complex and definitely is not for every retailer. The rewards can go beyond profits in this arena if you master the fine art of customer relations.

The commercial builder/remodeler is similar to the residential builder, but the stakes are higher -- as is the stress associated with the large sums of money involved, tight deadlines and the ongoing quest to deliver on time and on budget. This category of customer can break you in just a few jobs if you are not prepared to deal with the unique obstacles characteristic of the commercial market.

Negotiated commercial can be less stressful in comparison because you often will deal directly with the business owner or facilities manager. Typically, you will be able to determine a time frame that fits your schedule rather than following one based on appeasing a builder.

The unfortunate downside to negotiated commercial is that the work may have to be done after hours in occupied space that requires specialized expertise for moving computers, office furniture and file cabinets. Commit to this customer and you will find it very rewarding as you perfect your systems.

Geography, for a retailer, has a double meaning in my mind. First and foremost, how far are you willing to travel to install flooring? Second, where are the homes and businesses that you want to work in?

You will find that you cannot definitively define your geography, but you can manage it to the point of profit. A good retailer's geography will constantly change as his customers change. Obviously, you want a market that yields the most for the least time and effort. That's a simple concept, but you'll make a costly mistake if you don't seriously consider your best options.

Your store's image will be a reflection of its customers and geography. Truly, this is the most important decision a start-up retailer has to make. As soon as you open your doors, you have started branding your name, store and future. Do you want to be all about the best price or highest quality? Or do you want to be perceived as the pinnacle of flooring retailing, delivering the best products at competitive prices with the highest level of service possible?

My partner, John Hathaway, and I knew that our skills in customer service probably were the best assets we had going into the retail market. We also wanted to do less and make more. Our business model is simple: we work in a 40-mile radius and target residential occupied homes that sell for $250,000 or more. Our goal is to become established as an affordable upscale retailer that delivers exceptional, affordable products on time and with minimal complaints.

Initially, the business model seems simple. But you will see that the execution becomes more of a challenge as unexpected real-world issues become coiled in with our goals and plans. Look for my next article as we try to balance it all.

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