|Alure Home Improvements President/CEO Sal Ferro and his team have grown the company by making smart choices about diversification and growth.
Photo by Al Bello/Getty Images
The basement finishing market has been very good to Alure Home Improvements.
More than a decade ago the company, in partnership with Owens Corning, created the market for finished basements in the Long Island, N.Y., area when Alure became the first remodeler to offer them there on a large scale basis.
That division — making up more than 40 percent of Alure's business — has helped to drive the company to more than $50 million in installed volume last year, putting the company on the top of Professional Remodeler's Market Leaders list for the second year in a row.
“It would have been easy to put everything into that, but if you're not diversified, you're not controlling your destiny,” says Alure President/CEO Sal Ferro.
Staying diversified has been a key part of Ferro's strategy for the company since taking over as president seven years ago and becoming CEO in 2006. That plan has paid off this year, which has seen declines of more than 10 percent in the basement division, but 18 percent growth in the kitchen and bathroom business. The company is seeing declines in specialty areas such as sunrooms, but growth in other segments. Although Ferro is expecting a decline in 2008 volume to about $46 million, things could have been worse without the better-performing divisions to cushion the drop.
“I think what we're seeing now is people focusing on wants versus needs,” Ferro says. “Needs are playing a bigger role, and that's why some of the specialty business is off for us.”
Although diversification has been important to Alure's ability to weather the downturn so far, Ferro is quick to caution that it may not be the answer for everyone, especially in the current climate.
Ferro says he expects many companies to try to diversify in 2009 as a way to make up for declining revenues in companies' core areas of expertise. It's easy to look at the current climate and figure that adding another division will make things easier, he says. He cautions that companies need to carefully consider the added costs of new divisions before making any decisions.
“To diversify, you need capital,” he says. “You need to invest in advertising; you need to invest in whatever skill sets you need that your current employees don't have. You need to put some time and energy into it, and at a time when remodeling demand is low, it's probably not the best time to do it.”
The mistake many companies make during a downturn is taking on more than they can handle. Diversifying is more difficult and more expensive than many companies realize, Ferro says.
“It can be a money drain,” he says. “Now is not the time to be draining money.”
Diversification can still be an important part of a company's strategy, as long as it is part of a long-term growth plan and not a knee-jerk response to a slowing economy. Even in a down economy, diversification can help a business grab more market share for a company that has the resources to do it right.
“Diversification allows you to be balanced in a way that one particular industry, if it's running through a rough time, that one segment can't take you down,” Ferro says.
Increasing Alure's product offering over the years has helped the company stay profitable by giving it a healthy mix of services. It also allows the firm to leverage its most important asset: a large base of satisfied customers. As long as a company is doing a good job, past clients of, for example, a roofing job can make a great future prospect for a bathroom or kitchen, Ferro says.
It's also helped the company keep good employees by giving them a chance to expand their responsibilities by working in and leading new divisions.
“If we didn't diversify, we would have lost some super talent,” Ferro says. “It's been a great opportunity to give people some growing room.”
The expansion philosophy has also helped Alure attract more talented partners from outside the company by offering a chance for remodelers to come in and run a division and also get ownership in the company, something Alure has done with three people so far.
Choosing where to expand is just as important as deciding to grow services. Before making a decision to offer a new service, Ferro and his team carefully look at the market to see if there is a demand for the service or, as in the case of finished basements, if they can create a demand for the product.
“We determine if there's a need, want or desire out there — if there's a void in the marketplace — and we can put the skill set together to do it,” Ferro says. “It's not just profit-based. So many people diversify just because they want to make more money, and that's a huge mistake.”
Although profits are important in the short-term, that's not the No. 1 goal. Instead, Ferro says his top goal is to “perpetuate” the business. He wants to make sure it doesn't just make money this year but is around for years to come.
“If you're interested in perpetuating the business, you know that a profit is needed, but you also know that the planning that takes place is not always in the best interest of today's profit,” he says.
Thinking about short-term profits over long-term health can lead to making rash decisions such as quickly expanding or getting rid of your best people when times are tough just because they're the highest paid.
“If you're just profit-minded, you're not thinking about the big picture,” Ferro says.
Alure Home Performance, the newest division founded in 2008, is a good example of this. The division will focus not only on home “check-ups” on energy efficiency but also on safety issues, such as checking egress windows and smoke detectors. A report is produced at the end outlining suggested improvements.
Ferro added it with profit in mind, as well as the goal to create long-term opportunities for the company and employees. The Alure team was seeing more demand for green from its clients, plus there were a number of employees interested in doing more green work.
“I don't see this as something that generates huge volume,” Ferro says. “The average ticket's going to be very small, but I see it as an opportunity to connect with clients and part of our corporate social responsibility.”
Part of Alure's marketing message is that while the company offers a variety of services, it has the benefits of a specialty remodeler. That's because employees work in only one division. Basement salespeople just sell basements. The production team in the kitchen division isn't installing siding. Project managers only manage jobs in their division.
Ferro likens the strategy to that of a medical practice — an analogy the company also uses to explain it to clients.
“The philosophy is this: When you go to a medical center, the last thing you want is a foot doctor to operate on your heart,” he says. “You have to be careful people don't spread their focus too much. Everybody is a specialist focused on the specific trade they know and they're excellent at.”
On the other hand, the company has also moved people from one division to another as the need arose this year for more work in areas such as kitchens and bathrooms. It's designed to be a long-term move, not just for one or two projects — a redeployment, as Ferro calls it.
“When the balance of work changes, we don't want to lose good people,” he says. “Redeployment has really been good for us because these people are already trained on the culture of the company. They know what we're all about.”
|Coaching, planning, training and updates with management||25 percent|
|Analyzing numbers, reviewing results, budgeting, planning||25 percent|
|Marketing strategies||15 percent|
|Business development||15 percent|
|Work-related travel||10 percent|
|Various other work||10 percent|