The Perils of Rapid Growth

While reacting to the surrounding business landscape apparently has worked, lacking a business plan might have contributed to the Gardner/Fox's decision in 1999 to take on a high-priced, low-margin project that caused more trouble than it was worth.

September 30, 2003

 


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The complete interior and exterior remodel of this hotel included 387 guest rooms, a restaurant, two kitchens, and electrical, mechanical, communications and fire-alarm systems.

Photo © Dale Anderson, Aztec Media
Gardner/Fox "made intelligent decisions based upon frugality," Mark Pennington says. It still has no formal business plan or a formal budget even for fixed overhead. While reacting to the surrounding business landscape apparently has worked, lacking a business plan might have contributed to the company's decision in 1999 to take on a high-priced, low-margin project that caused more trouble than it was worth.

That year, the company completed a record $28 million in remodeling projects. But 50% of that revenue came from one project, a complete renovation of a high-rise Radisson hotel in New York. That job was well outside the company's usual geographic territory and scope of work.

Gardner/Fox pursued the project partially because it seemed like "the next step," Mark Fox says, and partially to satisfy an existing customer, an investor with a stake in the hotel.

The result, from every standpoint, especially financial, was a disaster.

The project went bad because it was a lump-sum agreement and the major subcontractor went out of business. Gardner/Fox hired the sub's employees at additional expense so the project could be completed. Also, the project used predominantly union employees and fell outside Gardner/Fox's areas of expertise — not because of its size but because of its distance from the Philadelphia area and Gardner/Fox's unfamiliarity with the subs.

Gardner/Fox now focuses more on whether it can handle a job. It weighs all the risks and chooses its projects more carefully. As Fox says, when a large project with a 3% profit margin runs into trouble, "3% goes fast."

Why do successful companies occasionally (and sometimes fatally) veer off the tried-and-true path? Professional remodelers take great pride in all of their work, but completing a "trophy" project turns heads and attracts attention.

Lessons learned? Know what you and your company do best and keep doing it. Stick to your niche. Don't know your niche? Run your numbers, per job. Which jobs are the most profitable, by the hour as well as percentagewise?

For Gardner/Fox, the best residential jobs are $150,000 to $300,000 additions that take full advantage of the company's one-stop shopping. On the commercial side, it's fast-track office fit-outs that need to be designed and built quickly. Gardner/Fox learned its lesson, and its margins have returned to their historical norm.

Do the math on a 5% net profit on sales of $21 million. Slow and steady really can win the race.

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