Whether to Work for the Competition
Does it make sense for a large, capable shop to run some complex parts for smaller shops that lack those technical skills? February 6, 2010
Question
Ok, let me set this one up. We are a custom shop that does almost exclusively high end residential projects. We are still very busy, and our projections show no signs of the workload changing in the next 6-9 months. We have a lot of one-man garage-type outfits wanting to outsource some of their more complicated items through us. My issue with it is this - the cabinetry that these type of operations can produce is not really in a market in which we wish to compete anyway, but if we start making intricate things that they are not tooled for, now they are dabbling in our market and competing with us. So, if you were in my shoes, would you accept the work from them or not? Before any of you one man operations get mad at me let me say I respect both your right to be a part of the industry and the quality of work you can produce, I used to be one myself.
Forum Responses
(Business and Management Forum)
From contributor J:
This is hard to know for sure, but I suspect you could profit from doing this work. If you're already have a backlog, it would make sense to treat this stuff as overtime work and bill accordingly. You get to earn a premium rate for that bit of work, and the small shop gets access to a slightly higher-level customer. They're never going to underbid you on the larger high-end projects because they are paying a premium for the components. Assuming there's a market for mid-level work that's beyond the reach of the independent garage shops but below the size or overall quality you'd normally mess with, you and the small shop can both profit by collaborating and taking a bite of that midsection.
From contributor O:
Will refusing the work be effective in keeping them out of your market or only drive them to another supplier? Is 'keeping an eye on' what they are building and bidding on of value to you? Is maintaining a relationship with them of value to you? Would they pass on leads or recommend you on projects that are beyond their scope (if there is such a thing.)
The flip side - would having a relationship with a small guy provide a 'safe' place you can refer jobs that are too small for your business, or too low end but still leave the door open if the referred (rejected) potential client ever wants a 'high end' job? How would you handle an estimate that they have asked for if you can tell, from the items requested, that you are also bidding on the same job? (The flip side; will their noticing that you got that bid effect your bidding or you?) Is there a real profit in selling to them or is this an accommodation to a fellow builder matter? Does selling to them screw up your work flow or does it fit in well?
From contributor H:
I guess if they are willing to pay for it then you should do the work. I bet you just wind up figuring the price. The other shops that have come to me to do something they didn't have the machinery for think I should pay them to take for the privilege of doing it.
From contributor S:
Some of the attitude amazes me. Nearly every shop owner on here was a garage shop at one time or another. Most of us started out that way, some have remained that way, and in some parts of the country the garage shop (defined as any shop located on ones residential property) is actually the norm.
You are not going to stop the small guy by refusing his work, someone will do it. There's a good chance this "jack of all trades" cabinet maker is much more talented that most of your factory guys who drill hinge holes 8 hours a day; and that's all he knows of the cabinet business. Obviously the garage guy is a great salesman because he got someone to pay him for something he can't efficiently make. He probably has the skills but not some specialized machine.
Level with him, if you don't want to become involved, have him move down the road, another shop will help him out. Don't think for a minute he can't get someone to do it, perhaps cheaper or better with a little shopping around.
From contributor F:
Here are my thoughts for what they're worth. I'm a one man shop, though not a garage shop and I try to build as much as possible myself. I'd like to think given enough time I could build just about anything, but practically speaking that's not the case. There are many areas of woodwork that are out of my comfort level whether for size or style of project. So if someone comes to me with a job outside my capacity, I have to decide whether to take it on and outsource it, refer them to another shop. I think for me the best scenario may be to refer them to you. That way they get a shop that can handle their project, and hopefully you'll return the favor by referring smaller projects back to me.
I can see where other shops may choose to take the job and outsource it. I believe you still have the advantage though. You’re still setting the price, so they cannot underbid you. You’re doing the work, so they are not really growing or adding to their skill set in order to compete with you. Finally you still have your reputation, which is where most of the work comes from anyway.
From contributor K:
Plain and simple - they are just another customer (revenue stream) that you neither had access to before or the consumer they have access to who most likely has already contracted with the garage shop owner. The likelihood that you will specifically cross paths with him in the marketplace is slim.
Even if you did, and his price was lower than yours for the same work, and that is what the customer is focused on, the garage shop owner will get the bid anyway, so you are just guaranteeing that you will still get work from the clients you lose the lower prices sound like a win to me. For projects that are out of his ability to produce, talk to him about you providing the project wholesale, and all he has to do is install.
From the original questioner:
I understand that us not taking on the work won't keep someone else out of the market, with enough diligence you can always find someone to make something for you. Fostering a relationship with another shop is a great idea, there are some people that we pass jobs back and forth between already and it has worked out well. The biggest problem is work flow, and yes it does screw it up for us. We need to limit the amount of really intricate items in a project to about 20% of our sales in order to balance the work based on relative skill levels of our staff. If we get much higher than that it negatively affects gross production based on job value. So only taking on that 20% from someone else would create a bit of a vacuum. My biggest concern is having our name attached to a project in its entirety even though we've only produced a portion of the work, a good rep is hard to get and easy to lose.
From contributor O:
How likely is it that the smaller fellow would use your name? I would imagine he would want to claim the project as all his own. I suppose if he screwed up the integration of your component he might blame you. I also suppose he might, under just the right conditions, use your name to vouch for the quality of his work. Say if a potential buyer was balking and telling him he liked your (insert here whatever he is having you make). He might say that he buys his whatever from you. Seems a bit slim, but you are dead right to think about it. Your reputation is what you sell and what sells you.
From contributor J:
We are back-and-forth constantly with several other shops (slightly different industry). In certain areas we compete and in others we have each differentiated and called upon one another when a specialty arises outside of a single shop's capability. Trust factor is high and the whole thing works like per-project joint ventures. Sometimes we wear each other's T-shirts to present a seamless appearance on-site. We all farm the field.
From contributor L:
We run parts for other shops and we run entire jobs for larger shops. I don't worry about someone being competition, they are just another customer. If you worry about the garage shops "stealing" your customers you don't have much faith in your ability to compete!
From contributor E:
We provide our services to whomever is willing to pay for them including our competition keeping in mind that there are no deep dark secrets to working with wood handed down in secret ceremonies and that they can go down the street to the next ten shops who are very motivated to part with their skill and knowledge.
From the original questioner:
I'd like to thank you all for your insight. Its given us a lot of food for thought. I love the interaction and free flow of ideas on this site!
