Volume is Vanity

Remodelers should concentrate on building a slow-growing, profitable and stable company rather than a fast-growing company that sacrifices quality, profit, client satisfaction, employee satisfaction and cash flow.

December 31, 2007

Dave Bryan
Advisory Board Columnist

Years ago, when I was stumbling through my real world education, desperately trying to obtain the secrets of a successful remodeling company, I made certain assumptions. Key among them was that bigger is better. "Imagine if we could grow to $1 million dollars — we would be on easy street." That sounded great, making my chest swell with pride. I would be able to check the "$1 million and above" box on industry surveys! I could answer the ubiquitous "What's your volume?" question at trade shows with a swagger and air of accomplishment.

We hit our $1 million goal three years ahead of schedule and, for a short time, it felt great. But, bigger is better, so...

The next goal was $2 million, then three, etc., etc. However, the pursuit of growth — exciting though it may be — can mask a host of problems. Chief among our problems was that we were not delivering nearly enough profit to the bottom line.

A company should exist to serve the owners and employees in several ways: 1) Fair compensation for the work/risk being asked of us; 2) Job security; and 3) Quality of life, although not necessarily in that order. I thought that if I built a bigger company and did good work, by definition, all good things would come to us. I was wrong.

I share this with you not as some 12-Step program for remodelers, but because I know our industry is filled with owners who toil under the same misinformation. I once attended a seminar where the speaker said, "Volume is Vanity." It struck me right between the eyes! I was vain! Though I had never thought of myself that way, the evidence was clear: I pursued volume over important things like salary, profit and cash reserves.

I operated under the delusion that we could grow our company into profitability and that success was always waiting at the next volume plateau. I was like the dog who always assumed that the best part of his life was six inches beyond the end of his leash.

And so, today, I am promoting a new and better perspective. How about "Profit is Paramount," or maybe "Stability is Sustaining?" Regardless of the slogan, the point is that we are far better off building slow-growing, profitable and stable companies, rather than fast-growth companies that sacrifice quality, profit, client satisfaction, employee satisfaction and cash flow.

As you plan and budget for 2008 (What? You haven't started yet?!), don't fall into the trap that success will only come from growth. If you can't make your budget work without large growth, then you need to adjust other areas within your company. Has your overhead crept up on you and grown too big? Is your markup delivering enough gross profit to make the net you need and deserve? Are you factoring in economic realities in your market? Are you paying yourself enough?

The next time someone asks your volume, have this witty response ready "Volume? How provincial! Wouldn't you rather know my net profit percentage? Or how about my owner's compensation and net profit combined?" (The benchmark for which, by the way, should be 10 percent at a minimum with 20 percent as an ideal goal.)

Lastly, let's not forget about quality of life. If your company generates great numbers, does it do so because you have created a well-oiled machine or because you work 80 hours a week? Being a workaholic is just another form of vanity, after all. The goal is not be proud of how many hours you work, but proud of how well your company performs while you and your employees enjoy life.

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