Question: Should I build a “parallel company” to serve the budget cleaning market?
Steve’s reply: Let me count the ways why you shouldn’t! But if you insist…
Steve,
Do you know of someone who has or has attempted to develop, successfully or unsuccessfully, a carpet cleaning business similar to the Honda/Acura, Toyota/Lexus, etc., models of serving both price conscious and more discerning clients? This is a concept that I find intriguing and would like to learn what someone else may have experienced.
There would be two separate entities operating under one corporate umbrella. For instance, my existing premium “high end” company would continue to cater to a more discerning client base while a separate service would serve more price sensitive clients.
My feeling is that the benefits would be found in economies of scale in purchasing, maintenance, office/bay, and fixed costs (admin staff, utilities, etc.) Essentially this model would be a multi-truck operation but with different names on the trucks.
The idea, for me anyway, is to make the infrastructure a “multi-mission platform from which deployable units have different missions”. Forgive me as I spent many years in the Navy and can’t stop thinking like that! 🙂
Anyway, I was just wondering if you were aware of anyone having attempted something similar. I’d like your thoughts on this. Thanks so much.
Intrigued in Southern Georgia
Dear Intrigued,
I think it will be very difficult to maintain two corporate cultures and identities under one roof. (Especially if you start trading employees back and forth and if you can’t do that you lose an essential advantage of the plan.) You will also be dividing your marketing dollars and inevitably diluting your presence and image in your community.
My big question to you is: “Do you totally dominate the market you are serving now?” If not, then your biggest bang for the buck is probably to focus on your local Prime Market first.
My simple answer for 99% of the cleaners/restorers out there on doing two businesses serving different market sectors would be … DON’T.
Why not? Simply because very few will ever totally dominate their local and easily reached markets and if so why go through the agony of setting up another business?
IF someone insists on going ahead and expanding into another company here is what I would do: (NOTE: These points also apply re: setting up a branch in a different location.)
a) Build up a big “expansion fund”. (You will need it all before the new business can stand on its own two feet.)
b) Develop a complete Operations Manual of your existing business so that the new company can piggyback on to your original operation. This will allow you to trade employees, equipment, etc.
NOTE: SFS members will have a huge head start on point “b” with the 1,000 page’s plus of systems and procedures that they receive in their Strategies for Success seminar. And no, you can’t “buy” the SFS Operations Manual! We give it to you free but only if you attend the SFS seminar. (You also have to promise to not fall asleep during Big Billy Yeadon’s marketing day.)
c) Look for a good manager and cut them in on a profit-sharing plan for the new business.
d) Especially in the beginning hold your manager accountable to meet growth and profit targets. (Actually this topic of “Adding Employee Accountability” is a good goal for every company.)
e) Before I did any of these things I would have verified that the new market met my target demographics.
f) Then before I pulled the trigger I would have someone blindfold me and pound me to a pulp with a 2″ X 4″! 🙂 IF I enjoyed that experience I would continue with my expansion plans! On the other hand, if I discovered I wasn’t such a masochist after all, I would probably focus on my current business and maybe “expand” by offering other services to my existing client base.
Honestly, Intrigued, I find most but not all “second business” expansion plans are fueled by owner boredom, not by actual profit and loss realities.
Now I gotta say I’m the first to say I can be wrong. So let me know if you agree or not by giving us your comments below. No matter how bad you pillory me you still have my thanks in advance for participating in our SFS training options.
Remember that the Navy is not a profit making entity! Honestly, I find most “going outside your market expansion plans” are driven more by owner boredom than by sound financial planning. Sorry to rain on your parade!
Let us all know what you decide.
Steve
I know a roofer who has two separate phone numbers and two separate price structures. He does exactly the same work with the same people, but he says, “Some people are looking for a higher-priced roofer.”
I agree with the principle here, Dan. When we price ourselves too low there is a substantial part of the population who assume your work is inferior too. Charge more and the (sometimes mistaken)assumption is that your work quality is better too.
Thanks for the comment,
Steve
PS I don’t think I would choose the business model of your roofer acquaintance but we can still learn from his consumer insights.
He said he would answer calls on both lines from the same people, and some would still pick the more expensive service.