A Growth Story: From Zero to $50 Million

The owners of NewSouth Window Solutions took the company from zero to $50 million in just seven years. Here’s how they did it. 

August 08, 2017

Well before they departed Champion Windows, Earl Rahn and Dan Ochstein had an idea. It was actually Ochstein’s idea and he says he pitched it—“literally begged”—Champion management to act on his brainchild, which management did not. The idea involved designing a vinyl window specifically for the Florida market and bringing Champion’s factory-direct model to Florida, one of the few states where that company had no dealer operation.

It was 2007 and both men were in their 50s, an age when many people aspire to go to Florida for other reasons than to sell windows.

Both had had long careers in the window replace-ment industry, mostly at Champion, a Cincinnati company that manufactures windows, doors, and patio rooms from a 500,000-square-foot plant. Champion sells exclusively through its network of dealerships, co-owned by the company. Rahn led its often top-selling Atlanta operation, and Ochstein was president of the company’s large patio-room division.

In 2007, the owners of Champion sold the company to a private equity firm, and Ochstein, son-in-law of one of the founders, signed an agreement to stay on for three years. “I was looking at retiring,” he says. But on giving it more thought, he realized that he had no hobbies. “My only passion is working.” So he contacted Rahn and they began planning how to make Ochstein’s Florida window idea a reality.

Fast forward to this past April and NewSouth Window Solutions is among the 15 largest home improvement companies in the U.S. 

Out the Window

The idea of “replacing” what’s in a wall opening with something more practical and energy efficient is rel-atively new. Champion, for instance, went into business in 1953 selling aluminum windows and doors. With the introduction of vinyl as a window framing material in the ’70s, it soon became the company’s mainstay product. Vinyl gave the replacement market enormous impetus, in effect creating a whole new industry within home improvement. Replacement window sales (as opposed to window sales for new construction) steadily climbed until 2005, with 36.4 million units shipped that year. The number dropped to 27.5 million units in 2009, a plunge brought on by the recession.

In 2007, Champion was not only the largest replacement window company but the largest home improvement company in the U.S., with sales of $345 million, exceeding—by just a few million dollars—those of archrival Window World.

In the 10 years since then, the industry has struggled to recover stability. Many of the largest window replacement retail companies—Penguin Windows, Windowizards, Thermo Tite Window Systems, St. Clair, etc.—have closed. A number of mostly smaller window manufacturers—Republic Windows and Doors, Schüco, Kensington Windows, Gorell Windows and Doors, and B.F. Rich Windows & Doors—have folded or been sold.

In April, NewSouth broke ground on a 234,000-square-foot facility scheduled to open in January. The site will house all three current manufacturing facilities, a showroom and coporate offices under one roof.

But while the industry itself has restabilized, it is, many agree, now in the throes of change. The products, for instance, are evolving. The market share of fiberglass windows is growing, and one of the most in-demand models today, made by Renewal by Andersen (RBA), is a wood composite. 

The players are different, too. Today Window World is the largest window retailer as well as the biggest home improvement company, having left Champion far behind. And at the local market level, consolidation often reigns, squeezing out mid-level players, leaving the biggest window replacement retailers and lots of small contractors. “We were doing a big job on windows,” says industry consultant Chris Edwards, who folded his window and siding company, Total Remodeling, in Union City, N.J., three years ago. But the bigger players in the market, RBA and Power Home Remodeling, have absorbed the installers, Edwards says. And without installers, how do you sell windows?

And then there’s the customer, probably the biggest wildcard. Buying replacement windows represents a significant investment for most homeowners. In the past, they had to take the salesperson’s word when it came to the quality and life span of the product. Not anymore. The information they get online often renders that unnecessary. It’s made the industry’s traditional one-call close sales methodology increasingly unwieldy, especially with Millennials. That said, window replacement, on the retail side, is still a business where “a lot of companies operate like it’s 1975,” says Dan Schweihs, CEO at Window Universe, an eight-unit window replacement chain based in Baltimore. “It’s the only way they know,” he adds, conceding that for some, maybe many, it still works. 

No Middle Man 

There are two basic ways to go to market as a window replacement company. You can buy a window from a manufacturer or distributor and sell it to the homeowner, or you can make the window yourself and sell it to the homeowner in what’s known as the “factory-direct” model. What NewSouth Windows does, like Champion and a handful of other companies, is make the window and sell it. 

Ochstein’s idea was to bring the factory-direct model to Florida, where it virtually didn’t exist.
“A few have popped up,” Rahn says, “but they didn’t have the capacity to get in front of the consumer. To do that you have to be well-capitalized, have a vision, a strategy, and a team that can execute.”

The model has advantages and disadvantages. On the plus side, there’s quality control and no waiting for product. Say you’re buying from a manufacturer or distributor and you order a job with 10 windows. Nine are fine but one is the wrong size. You can’t collect on the job until that window’s been reordered and installed, at typically a six-to-eight-week lead time. The factory-direct model allows you to avoid situations like that.

It also makes for a great marketing story. “We eliminate the middle man so you can have the world’s premier window for about the same price as standard windows,” proclaims the website of Gilkey Window Co., which serves Ohio, Illinois, and Kentucky.

Maximize Capacity

But the factory-direct model may not be superior in every case. The companies that have grown fastest in recent years—Window World, Power Home Remodeling, Window Nation—are brokers. Factory-direct companies must compete with other manufacturers that regularly invest in expensive new window technology. They have to, in effect, master two types of business and integrate the one with the other to succeed. “I tell manufacturers that want to start a retail window company to find a good one and buy it,” says Dave Yoho, author of Why Buy Replacement Windows? and an industry consultant who has worked with leading window replacement companies over the past five decades. Because, he points out, mastering marketing and sales can be daunting if you don’t know how it works.

But for factory-direct companies, their biggest challenge is not so much competitors as the need to sustain certain economies of scale. If a window retailer who buys from manufacturers isn’t hitting its numbers, it can simply scale back orders. With a business that’s factory-direct, the factory depends on the retail side to sell in order to keep the doors open. The more you sell, the lower your unit cost. But if sales drop—as happened to many companies during the recession—your unit cost, as a factory-direct business, goes up, possibly becoming unsustainable. “Running a retail operation is difficult enough,” says home improvement retailer and consultant Tony Hoty. The challenge for the window manufacturer that sells is to “maximize capacity, to keep the machine going.”

To some extent, NewSouth Window Solutions aimed to solve that problem by selling not only residential but commercial windows, manufacturing two separate lines out of two separate factories, balancing sales of one against sales of the other. The commercial division sells to the multifamily market under the brand name Doers Window Manufacturing. “We knew we couldn’t keep a factory busy 45 or 50 hours a week unless we had high-volume orders coming in from the commercial side,” Rahn says.

Dan Ochstein (left) and Earl Rahn opened NewSouth Windows in the middle of the recession and targeted one of the hardest-hit areas to start their company. "It was an opportunity," Rahn says. Today, NewSouth employs more than 165 people across the state. The windows for all locations are made in Tampa. 

Extreme Customization

Still, Florida in 2010 may not have looked like the most promising place in the U.S. to start a window company. Which is, Rahn says, among the things that appealed: “I saw competitors decimated and, with north of 20 percent unemployment in construction services, a workforce available.” To Rahn and Ochstein, who figured hard-hit Florida would recover soon enough, it wasn’t a blip in the economy, it was an opportunity.

The timing proved auspicious. Examining their prospective purchase by flashlight in a shuttered window plant, Ochstein and Rahn were able to buy manufacturing equipment from a failed producer for pennies on the dollar.

And they did their research, going to home shows and looking at the marketing programs of local window companies. What they found was that most were selling essentially the same window by Florida manufacturer PGT Custom Windows & Doors

“PGT is a huge player,” Rahn says. “If you go to Jacksonville, Tampa, St. Pete, out of 10 window companies, seven might be selling PGT. But by the time the consumer gets the window, one or two other people have bought it.”

Also adding to the mix was the partners’ estimate that 80 percent of Florida homes still have their original aluminum windows—a readymade market for vinyl in a region with relatively few big players. “Aluminum has an immediate thermal transfer,” Rahn says. “It’s like taking a cold can of Coke out of the refrigerator and putting it on the table. In 10 minutes, it won’t taste as good. The outside of the room reaches through the aluminum, making it way too warm to drink.”

But creating a better window wasn’t easy. Florida is known for its severe hurricanes that pop windows and tear off roofs, and in response, the state crafted one of the nation’s toughest building codes. What probably scared big window companies off, Rahn says, is the high cost of getting products approved. “It’s the most stringent testing criteria I’ve seen in my life,” he explains. 

Among those requirements are impact-resistant windows that can’t be shattered by flying debris. At NewSouth, that was achieved by adding an additional layer of laminated glass for windows in coastal zones.

Beyond impact, there’s also the issue of design pressure (DP), which measures a window’s strength in high winds. NewSouth designed its windows with aluminum inside the frame (“where it belongs,” Rahn says), for strength. “We thought we knew a lot about windows when we came here,” Ochstein says. “We had an impact line from up north, but we had to design one [specifically] for Florida.” 

Build It and They Will Buy

A window replacement business is all about generating interest from the maybe 5 percent of homeowners

who at any given time may be enticed into wanting the product. To drive business, NewSouth plucked another page from the Champion book. With a dozen or more active lead sources—including radio, TV, search engine optimization (SEO), search engine marketing (SEM), open houses, direct marketing, and more, the company has “inbound interest in five major cities 24 hours a day,” Rahn says, adding that, “Every appointment we run is inbound interest on the part of the consumer. We don’t canvass, we don’t have a call center, we don’t want to bother people over dinner.” 

The partners know how to build interest in a market well before they open there, which is something they say they learned at Champion. One successful promotion—good for a half-million dollars worth of business at a time—lets customers bring their window measurements to the factory to get “instant pricing,” along with a factory tour. “That allows us to invite the customer in and lets them test-drive the windows and see what kind of company we are,” Ochstein says. “When they see millions of dollars of equipment, that’s when they’ll realize that the ones we compete with are resellers.”

Since opening in the spring of 2011, NewSouth Window Solutions has added roughly one new factory showroom per year. Sales grew from less than $4 million in its first year of operations to $41.6 million in 2016, and Rahn says that the company’s sales for the first two quarters of 2017 are close to equaling all of last year’s. NewSouth Windows has steadily expanded its store count—it’s now in Tampa, Orlando, Sarasota, and West Palm Beach—with a fifth showroom opening in Fort Lauderdale on Labor Day. Melbourne, Fort Meyers, and Jacksonville are slated for the next three years and will put the company within 65 miles’ reach of 80 percent of Florida’s population. 

The factory-direct showroom managers are offered incentives to exceed goals not only with profit sharing but with the opportunity for joint-ownership (with NewSouth Windows) in the future, an ownership model similar to that of Champion.

And that future may at some point even go beyond the Florida state line. The partners talk about entering other Southeastern markets, such as Georgia and South Carolina. But for the moment, Florida—the third most populous state, with 20.27 million people in 2015—keeps them plenty busy.

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Comments

Fantastic success story! I am sure they are downplaying the hard work, candlelit hours and stressful moments, but they preserved and succeeded! Congratulations on phenomenal growth during tenuous times!

You're kidding. Shop around. Too expensive. Other companies, 3 of them came in at 10,000 or less for impact window and doors. The comments on Yelp are mixed.

I think there are no impossibles in this world. As long as you have dedication, hard work, and you put your heart in your work, then you can reach your goal in life. It may be a long road, but as long as you have patience and trust, you got it.

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