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How do you compete with smaller shops?9/15/16
Once upon a time, here on Woodweb, there were several old hands that answered these types of questions like this:
Don't worry about the competition. Work on your shop, your business to improve all you can, continuously. Do what you do as well as you can.
Sell what you make, what you are good at, what you like, what you know you can make money at. Do not make what others want you to do. Do not change things to try to get that work. Sell what you make. Let the other shops go cheap to try to get work.
If you alter who and what you are for one job, then another, you will fall into a cycle that will never end.
You have to realize that probably 80% of those 2 man shops are undercapitalized, have unrealistic pricing due to poorly understood overhead, and were probably started due to a failed drug test. They are probably not your real competition now, but no matter, they won't be around too long.
In another sense, they will always be there - just in different forms. This why you need not consider them - let those other shops have that work. Concentrate on your professionalism. It is always easier to cheapen things - everyone is doing it. It is more challenging and interesting to make things better. That area has much less competition. Step up into the fresh air and enjoy it rather than hanging down in the trenches with the mud, the blood, and the (cheap domestic) beer.
Mr. Trout has classified a large number of successful and talented small shop owners and the craftsman under their employ as drug using idiots. As one of them, I beg to differ. If you want to insult good hardworking folks trying to make an honest living, at least do it without hiding behind a pseudonym.
With the economy Improving the small guys are trying more startups.
I have no problem with the middle market as it is a dog of mass production low pricing and dog eat dog, i really do not see the attraction to it,
I am with Kilgore, find what you do and do best stream to it make it profitable i have always been told, when you do good work the kings will find you.
Dave, with your talent and as a furniture maker, shops like ours are the least of your competition.
Nice work, when they call me for work like that i refer them to those who do that work.
We obviously don't know Brett's market. High end in the NE is a 2 million dollar mansion. Midrange could be a $500k house.
There are quite a few small shops like BH Davis Curved Mouldings who can beat their bigger competition because their overhead may be a bit lower, but they are a hell of a lot smarter than their competitors.
We do a ton of beaded inset face frame jobs that we can easily beat a larger shop on price. Because once again with craftsmanship, experience, and a correctly fitted out shop, the larger shop cannot compete.
I've worked in both size companies. Much of your overhead is redundancy and bureaucracy. In a small shop the same guy does design, estimating, sales, organizes the shop, etc. Those small shops can run very LEAN smart businesses when done properly.
Many of the 2-4 man shops have a small cnc or access to one. The advent of outsourcing drawer boxes, doors, even cutting entire kitchens by a bigger shop; allows a smaller shop to be competitive.
These shops are run by some of the smartest people in our industry. Some in Colorado might be smoking pot, but the rest of us are not all drug users.
When Brett is talking about beating the small guy competition because he has 35 guys to run a cnc , an edge bander, and a thickness sander. Its not realistic to think you can beat the small shops with your hi-tech equipment. We have a Striebig panel saw and a smaller edgebander. I can cut & band a kitchen faster than you can talk to your design guy, cnc programer, shop foreman, assembly guys in a team meeting. Yes, we have a thickness sander.
The real pisser is when a shop is reliant on cnc and the thing breaks. One of our local shops has two big ones running, because one of them is always being serviced or it is under utilized. This causes very high overhead. Our panel saw always works.
We've been using prefinished interiors & outsourced drawer boxes since 2000. Its sounds like Brett is more recently trying things like prefinishing. He's way behind the times.
I haven't seen too many shops that do both commercial and residential well. They are different beasts. The biggest problem is you end up doing 75% of one and 25% of the other. Its hard to maintain quality & timeliness when switching gears. This affects your overall costs.
Don't blame smaller shops for killing you on price. You got 35 employees. Are you seriously blaming a couple of 2 man shops. What about the other 10 shops within 250 miles. Those maybe 4 or 10 or 35 man shops that are run better than yours. Perhaps you need to look further than down the street for your competition.
The Kilgore thing is ridiculous without question, an alltime low there.
My take to reading the op (of course the idiocy that follows cant help but to skew things) is that I would see it as just the opposite. Being a smaller shop I cant in any way shape or form compete with the big boys. Not a chance. I would almost argue that overhead is likely the same, if not higher, for the small shop.
I personally think the issue is larger shops unwillingness, or inabiliy, to adjust to the current climate. Perhaps times are receding for you faster than the business climate and expenses allow you to adjust for. Sorry for your luck. To me the ability to be extremely dynamic in your capacity is going to be very advantageous in the coming times. Large behemoth's are not so good in that capacity because they have spend millions on equipment to stack panels. Great when panels are the it thing but when things shift a little,.. sorry for your luck.
The small guy is never going to come out on top but to label all of them (us) as guys who cant pass a piss test is the the most invalidating thing (to the poster) to say.
Ive been able to pass a piss test for 30 years. Every small shop around me has been able to pass a piss test for 30 years.
This is all the more reason to enjoy seeing a shop like Kilgore's suffer and flop in the wind.
If your "commercial division" can barely keep up with work you already have and your "residential division" is busy as well, I'm not sure what the problem is, other than you have less of a certain type of work.
Are your divisions interchangeable, and if not, why not? If you have more than sufficient work to keep the employees busy, does it really matter what category of work it is? If the decline of work in "mid-range homes" is offset by commercial work, institutional work, or high end residential work, why is that a problem?
Is/was the profit margin greater on "mid-range homes"? Or is it just a personal sore spot that there has been a shift in the type of work you take on, and that others are beating you on price in one fairly narrow market?
Just trying to understand what the real problem is.
What do they say? Open mouth, insert foot?
I misstated terribly what I meant to say about drug use and small shops. I did not mean that most small shops are drug users and abusers. I gotta learn to proofread better.
"....80% of those shops...." with the keyword being 'those'. By that, I meant that the shops that live on underbidding the established shops start because of a failed drug test or similar, and the principals are inexperienced and undercapitalized. In most cases.... Therefore they are unable to compete fairly, on the level field.
What responsible adults do in their spare time means nothing to me, and I do not mean to judge anyone except those at hand - the inexperienced garage shops that spring up as the economy dips (or raises), or as the big shop lays off, or whatever. We have a situation around here where the responsible shops have dwindled as a result of the last economic cleansing, so people are begging anyone with a saw to build them a house full of cabinets.
So... many shops have sprung up, taking deposits and then disappearing after 2-3 jobs and realizing there is more to it than just making money. The people doing this are users (on several levels), and not too casual about it. I had a finisher that cost me about $25,000 in serious problems that I had to pay/fix because he was too busy trying to kick his wife and kids out of their house so he could give it to his dealer.
Let me repeat. I am sorry if I offended anyone. My response was poorly stated and my intent was to uphold the integrity of the responsible shops, large or small, irrespective of what people may want to do in their spare time.
I do agree with you that the small shop can run a very lean business. This may because they are involved in every aspect of the business. They may work with the customer, draft the job, and then build it. They know exactly what is going on with the project before it even hits the shop floor unlike bigger shops who may have to study the drawing for a bit.
As far as having 35 employees to run the cnc, edgebander, and belt sander we both know that's not the case. I could involve secretaries, draftsmen, installers, finishers, project managers, etc. as larger companies have.
We have been experimenting with pre-finished materials and we do use them. We are trying to find the best build/construction method using pre-finished interiors. Can I ask how you attach your finished frames to your pre-finished boxes without nail holes? Clamps take way too long.
We produce a very high quality product in both residential and commercial but I totally understand when you say they're different beasts. I tell our guys that all the time. It's very hard switching res. draftsmen and comm. draftsmen around. There are too many differences and bound to have mistakes.
I didn't say I was blaming anything on the smaller shops. We get the higher end projects for a reason. We are very busy in residential and expect to get busier this winter. My question simply was how do we get more of the mid-range projects that we can produce very quickly?
If you have actual labor and material costs and misc. indirect cost then analyze the OH expense for that work, does this work need to support any of the other endeavors.
It depends on how your OH model is constructed but if you can look at hard cost and gross margin you will have a good start on determining if there is room to lower prices by reducing the OH allocated to the project. Then its materials cost and methods, and finally are you willing to turn dollars at a lower margin to keep your foot in the door for the simple jobs?
Basically I gather you view these as low hanging fruit from production and simplicity so is your sales approach recognizing the value of a job that is out the door in 3 or 4 days.
As soon as the design gets more complicated there is more time hand holding, coordinating and now you have a higher carrying cost and OH. Somehow you would need a method to charge a "Simple Jane" that turns into a "I saw 19 Pictures and I want a little of each" the additional cost rather than burdening all purchasers with a degree of difficulty that may not be there.
You are asking for the pot of gold at the end of the rainbow.
You want to build easy $20-$30k kitchens and wardrobes for decent houses. On the business side, we all want something like that as our bread and butter. Unfortunately that is exactly the product that a small shop and a bigger shop butt heads on.
If you are trying to use the quick in an out residential kitchens to fill in between the big commercial jobs then all the power to you. It would work except you in a sense you have lowered your self into the smaller shop market place.
In our area the smaller shops compete against the Lowes & Homie Dopie's of this world for $25k kitchens. The bigger shops like yours stick to big commercial jobs and residential developments where they are building a pile of houses(does this even exist any more?) so you get the whole package for multiple houses.
Of course, I know 35 people include the front office, designers, salesman, etc. The bureaucracy is more extensive than I alluded to previously.
Most any commercial shop can make kitchens but because they need to approach commercial work differently I don't see trying to do both. We are a commercial only shop making mostly one-offs. Lots of curvy stuff that the 2 man shop really isn't set up to do efficiently. So, they don't compete with us and we don't do kitchens. Just because a 2 man shop has a CNC doesn't mean they can compete with us. Many very small shops are under capitalized for the time spreads of commercial work.
I guess I don't see the down side of doing both residential and commercial? We are definitely capable of doing both and have been for years. I also don't see the down side of trying to go after different markets(lower end homes)? I would like to see the company grow and have a more distinguished line between residential and commercial(management that runs each division).
I would consider overhead. Smaller shops do the drafting, sales, ordering and the office with one person. I would analyze the front and back ends and understand true productivity. If someone is there to make life easier for management then are they really necessary? Cut the fat until you bleed then add a little back. The hardest part of running a business is understanding when to add or reduce people IMO.
I'm a small shop but have a 5X10 twin spindle CNC and big huge edgebander.
I look for work that the other shops can't do. There seems to be enough around.
I suggest you start with a cost analysis of your product versus an outsourced product. Could be that outsourcing is the way to meet the price point you need. Just because you already have the machinery and people to build the cabinets doesn't mean that it is the cheapest method.
I am the two man shop that is going after your market. Why? Because I can. I don't want all of it, just a job or two.
I have a beam saw, cnc, edgbander, and my whole shop in on a conveyor system. Makes it quit efficient. I don't have to tell employees what to do, which wastes a lot of time. The entire project is in my head so I rarely print a cut list which means I don't have to read it. I can respond in a day or so, what might take you a week to get written on paper so someone else can build it. You invested in employees, I invested in machinery. They don't go on holiday, come in late or get drunk. My machines don't have to work all the time to make them pay as most small shops think. A few hours a day is OK with me.
Being "bigger" doesn't make it better, you just have more people in the toilet at any given time than I do. I don't drink, smoke or do drugs. Also don't have a big dog or a four wheel drive.
It does take me several weeks to do a 30K job but, I only have one employee. Sorry, but you ask.
Even you would probably admit to being an anomaly in this industry. How many two man shops do you know of that have a beam saw, CNC & conveyor?
How many of these do you think actually don't even need to print out the cut list because they have it memorized before they leave the office?
I would guess that at least some meet the first characteristic. I would guess none for the second one. To have both of those attributes would boggle the mind.
I think the OP was wondering more how to find enough sales to feed an efficient crew of 30 people. The answer would probably be to diversify the product line. Right now his customer has to own a commercial business in need of casework or a house in need of a new kitchen. There's a great big world of renters out there who are greatly underserved by custom cabinetmakers.
The trick is to figure out who your customer is and how to become or remain relevant to them. Things that would appeal to renters could also be sold to homeowners. That's maybe a twofer.
It might just come down to how you proactively anticipate the questions a customer will have. The very first one that most of us stumble on is "how much will it cost?". Not very many projects go very far without answering that question. I would focus on how to get that fixed. The rest will follow in place.
The original poster said his shop was busy on both ends. So whats the real problem. ? The problem sounds to me like he wants it all. That's not realistic. As a small shop who's been in this biz for 40 years I know you can't get it all. There is work for everyone at different levels.
A larger shop with multiple employees and dedicated equipment cannot re-tool quick enough to do a "one of" and then go back to production and be profitable as usual.
I don't and never had seriously considered what the larger shops in my area are doing. I do compete with others but do not fret over losing a job or two to similar small size shops.
If need to get every job then there is another underlying problem not being addressed.
This is just a restated version of the same problem every level of cabinetmakers face...
1. How does the guy with a small shop compete with a guy who works out of his garage?
2. How does the guy who works out of his garage (or anyone one else) compete with those who use illegal labor who work without all the loaded costs everyone else has to work with?
3. How does the guy who makes his own product compete with Chinese made cabinets?
4. How does the guy who has a large facility with 35 employees compete with all the above?
5. How does the guy who has a large facility with 50+ employees (subjecting them to additional healthcare costs) compete with all the above?
6. How does a business owner who wants to pay himself $100K/year compete with a guy who is happy with $50K?
The list goes on...
The real issue is you can't control what any of them do at any level... you can only control what you do...
That said, keep in mind that the average residential HO will sit 2-3 appointments, because they KNOW they will be sitting through multiple 2-3 hour appointments and follow-up appointments...
Setting your business up to be in the position of removing as many of them from the market on the first night, is all in your hands... if you can remove from the market 3-4 HO's out of every 10 you meet on the first night, how many WASTED hours/days/weeks every year will you save yourself on "be-backs" alone?
And for those 3-4 you remove from the market, it doesn't matter who on the list above you are "competing" with...
Some will say that we can't compete with a 2-man shop but how can that be when we have the technology to get cabinets out the door faster including a cnc, edgebander, wide belt sander,etc?
Because you refuse to price them in a manner to get them and then educate your staff that they are on a limited time table and budget to get them out the door.
Im with cabinet maker. How does the two man shop compete against the big boys. We have to work harder and longer to achieve the same result. Unless you are like that guy in the above post who has a fully loaded one man shop and a memory for parts lists that few have. And in a world where no one wants to wait we are really at a disadvantage. When I loose a bid it is typically because someone else told them they could do it quicker
Just wanted to say how good it was to see KAP & Harry chime in. Good to see you guys. Hope all has been well-