The saying, “What came first, the chicken or the egg,” may also be applicable when thinking about a new niche within your commercial flooring business. Perhaps you’ve seen a new product or have a unique installation capability. An example would be poured epoxy, methyl methacrylate, or polyaspartic flooring topped with quartz crystals or vinyl chips.
To continue on last month’s column, “Picking a Winning Product for Commercial Selling Success,” here are some steps to take in making your choice of a new niche market a successful one.
The character and reputation of your company must be maintained. Every company has a certain persona. Is your core mission consistent with this new niche or will entry into this new area cause confusion in the marketplace? If your name proclaims that you are in the carpet business, perhaps you should consider using another name for your poured flooring or specialty concrete topping business.
On the other hand, if your name already implies a variety of commercial flooring finishes, perhaps this is just another menu offering. A good rule of thumb is this: “Would a reasonable person associate this business with my current business or not?” Also, consider the legal issues. You don’t want a thriving, successful business brought down by a catastrophic failure within the new business segment. This may be unwanted, front-page news - a disaster that damages your reputation or a large lawsuit and financial award.
Do market research for your geographic area; it is usually best to stay within the area you typically service. How many potential clients are available to you and where would they be, in a metro or suburban setting? Sometimes the Yellow Pages, local Chamber of Commerce or annual business listing provide an inexpensive way to get this information.
Find out all you can about your potential competitors. Do you already know something about them and their reputation? Even though there may be a number of people in your prospective niche, they may not be well-financed or managed, and have a less than stellar reputation for quality. Or there may be one or two top companies that do good work and have been so aggressive in their marketing that all of the profit has been squeezed out of the segment.
If you decide the niche is worth pursuing, will you use existing sales personnel or hire new ones? Yes, you will keep your initial costs down by using existing personnel, but they must still be trained and this will take time away from their current efforts (which will impact your other business).
How will you mount your sales campaign, tentatively or with a big kickoff? If you are using current sales personnel, create excitement and special promotional incentives. Focus attention by using cash prizes, trips, team recognition, weekly scoring, and monthly awards for selling packages that feature a range of products in your new niche.
As part of this initial evaluation, think in terms of the money, time and personnel you are willing to invest to see if this new venture will be viable. You should allot a specific time to test your new niche against projected costs versus sales.
Analyze your current capabilities, both financial and operational. Will this new area impact your financial stability and will you need other credit lines? Usually, a new segment requires new suppliers or a different relationship with current suppliers.
You have to establish your financial reputation with a new supplier and their typical terms and conditions may be different than what you receive in your other business. If your normal terms are 4/30, 3/45, N60 and you are confronted with 3/20, N45, will this work for you? If not, you need to negotiate something different at the outset, not after it becomes a problem.
For a current vendor, you may feel your existing credit line will not be sufficient for the expected new business. Ask for your mill rep’s support. There is no better time to discuss this with your credit manager; you’ll receive high marks for being proactive.
Have you done a projected gross profit and net profit for this niche? Is it more or less profitable than your core business? If you are operating at a gross margin of 25-30%, do you really want to take on a new high-volume business that you expect will be in the 20-25% range? My experience has always been that projected profit rates tend to be high, giving one a false sense of security.
This may be a new niche for you, but usually there are successful people in other geographic areas who will give you an idea of what to expect. Don’t forget to ask your product suppliers; they should be a good resource.
What is typical for billing and collection within this segment? If you are used to collection within 30-45 days, perhaps a slightly lower gross profit would be acceptable if you can pick up a check when the job is finished (or within 10 days). Or, if you are pursuing an owner, developer, or general contractor niche or most government clients, be prepared for 45-90 days as a best-case scenario.
Will this niche require a new installation department or will you use existing installers? Is cross-training of personnel possible? Having been through this several times, cross-training looks good on paper, and will work if you are moving within the same general specialty. Let’s say you are currently doing a fair amount of commercial carpet installation; training a crew in vertical lift installation methods should work. After all, they are still installing carpet tile.
However, if you are contemplating the poured flooring niche, having a team installing carpet one day and a poured floor the next will likely be a problem. And, unfortunately, frustration will set in and this specialty change will disrupt your existing installation team in their core area, too. The reason is the dramatic difference in tasks that must be performed.
High skill level and time-saving techniques cannot be maintained when work is not being performed day after day. Therefore, if the rest of your review makes sense, consider hiring and training a crew. Be prepared to commit to long-term specialized training to be successful and profitable in this segment.
Don’t forget to consider the issue of physical space required. Will you have to increase warehouse size to accommodate this new niche? Where will you store equipment and provide training? Is it possible to receive shipments of these new products and store them with other products in your warehouse?
As I found out, certain chemicals must have their own storage area with a separate wall, a door, posted signs and fire extinguishers. What is the potential for contaminating other products being stored in the same general area?
Imagine a warehouseman who ruptures several bags of concrete topping being stored on a rack, or forgetting to shut off the petcock on a drum of liquid resin. And it is not just the space, but how the products may have to be handled; must they be loaded by equipment or by hand? Do you require vehicle access within the area and is there sufficient swing room?
Some niche examples include a company that landed a small contract with a state agency and parlayed it into a multi-year state contract. A commercial dealer applied for a federal government contract and ended up with a blanket purchase agreement for five years. Another spent the money and 18 months in training to add vertical lift installation to his credentials.
One dealer took on a cleaning and emergency water damage restoration franchise. A contractor eliminated his other business and concentrated on poured floors, primarily for commercial kitchens. A commercial dealer made a name for himself by specializing in floor leveling; another became widely recognized for his expertise in colored concrete toppings. And the list goes on.
Over the years, I have seen a variety of companies incorporate niche business. Some were accidental; some costly and disastrous; others were wildly successful. In the final analysis ask yourself: Does this niche really make sense, from a risk and reward basis, for me and my company?