Is it possible for a shop to grow by 40 percent despite a slowing economy? Duane Eller and Randy Hardin know it is.
When they bought RiverCity Cabinets ( video ) of Austin, Texas, in October 2005, the first three months of sales at just over $100,000 provided a jump start into their first full fiscal year in 2006, for which they posted strong sales of $1.1 million with just seven employees.
The pace continued in the second full year of operation as sales grew 90 percent to $2.1 million. This year sales are expected to reach $2.9 million or 40 percent growth.
So, how did they do all that despite the slowing economy?
Eller and Hardin say their shop has been built on relationships they've developed with both employees and customers through 15 years experience together at another shop.
When the two owners found the 5,000-square-foot shop for sale they bought the assets, refinanced leases on the equipment and hired the five remaining employees. Not one day of work was lost. Those employees are still with the shop today.
They've also made effective use of outsourcing and developed an aggressive sales and design team.
Building on relationships
"It's important to build a quality box, to deliver on time and to get the installations done professionally, but there are a lot of companies that do that," says Hardin. "You have to have a relationship with your builder."
"Since everything was here, we just started making sales calls and it went pretty quickly," says Hardin. "It's those relationships that launched this thing. We didn't have to start from scratch. We knew who to call."
Outsourcing pays off
Eller and Hardin decided outsourcing would be a critical element in their shop. Hardin says it's the most effective tool they have to control their costs and focus their strengths as well as offer more choices to their customers.
"If somebody else can build something a whole lot more efficiently than we can, there's no reason for us not to buy it from them," says Eller.
"Our objective is to give the customer what they want at the most reasonable price that we can and outsourcing seems to be the most cost effective way."
RiverCity outsources doors, drawers, installations and some finishing.
"Outsourcing has enabled us to operate like a high-volume shop with minimal staff and minimal space, keeping our overhead extremely low," says Hardin. "And you know exactly what your costs are when job-costing each job.
The new owners quickly outperformed the sales of the prior shop, with far fewer employees, largely due to outsourcing.
"Outsourcing is a huge part of our success," says Hardin. "There was a learning curve, the shipping schedules, the timing of the jobs." The shop uses Microsoft Projects to organize and prioritize schedules.
Hiring to grow
When the owners bought the prior shop assets, they acquired a Holz-Her Cosmec Conquest 250 CNC machine, a Sprint 1310 edgebander, a Kundig widebelt sander, a Ritter face-frame table and Cabinet Vision software.
In the second year they needed to expand from the shop's initial 5,000 square feet to 10,000 square feet, which led them to hire a sales associate and a designer/project manager to grow the business.
"With 5,000 square feet, most of it is taken up with equipment, I had only five guys in the back who were actually assembling things. We were stacking cabinets all the way to the ceiling and renting trailers to store completed cabinets," says Eller. "Once we took over and had another 5,000 square feet, I somehow had to keep them busy. And that's when we decided to hire a designer or person to do sales."
The shop has one full-time salesman, who Hardin describes as a hunter/gatherer. "His main function is to acquire new business," says Hardin.
"That's why we're generating 40 percent growth in a down market."
Both designers, Patricia Lazok and Greg Walters, have university degrees in interior design. "Both are very skilled in design and drawings," says Eller, which is crucial when working with multi-million dollar homes, interior designers and architects.
The designer/project manager irons out details with homeowners including upgrades and appliance specifications. They are the liaison between the shop and homeowners and follow the job to completion.
The shop still has capacity to handle more work. Last year RiverCity purchased a SawStop table saw, primarily because of its safety elements, and a Hoffman beaded face-frame machine.
"If you have the right equipment, it'll save you a lot of time," he says.
The company is looking to get a bigger building ready when the economy swings back up.
"Our future challenge is going to be space," he says.
Have something to say? Share your thoughts with us in the comments below.