Print this document
By Ira Friedman December 2,2005
There are three good reasons why the CI business is broken. First, very few CI companies successfully run multiple locations. Second, the average CI business earns a paltry $1m in sales. And third, CI businesses are almost impossible to sell. All told, these are three good reasons why custom installation looks more like a hobby than an industry. Here is a final examination of these key factors.
Multiple Locations. A multiple-location model equates to success because it proves, on some level, that the strength of the business is in its process and offerings, and not tied up solely with a few key employees. There are examples of service businesses in other industries with multiple locations. H&R Block, Jacoby & Meyers, and Lens Crafters were once single-location companies that understood how to leverage their process and take it to other markets. You dont expect Mr. Block to prepare your taxes. You dont care if Mr. Jacoby represents you in court. These companies have transcended their founders.
So why arent there any national CI chains? This is probably the case because none of the players has a repeatable process. Oh sure, many CI dealers have a good process. It is often one that works just fine for them, but is not an exportable process.
Low Average Sales. There are a handful of CI dealers earning more than $5m per year on a consistent basis, but most are at $1m per year. Thats not just a small business, thats a shoestring business. Thats a business thats mighty proud to survive every year.
The number-one reason that there are so many under-performing companies in the field is that most companies are simply a job for the owner. Its so easy to get into the business that lots of people try it to see how well they can do. Reason two is because manufacturers and distributors make it easy for any Makita-wielding T-shirted installer to get product. And third reason is because clients dont yet demand higher levels of performance.
As long as marketplace conditions favor uneducated, underperforming, salary-driven performance, then thats what the market will get. But dont forget the enablers: those manufacturers and distributors who allow these underperformers to specify and sell their product. By fostering a market teeming with installers, manufacturers ensure the greatest number of sales. The notion that these installers should run a profitable, long-term business is irrelevant. And thus, a foundation of strong CI dealers is thwarted. Keeping the CI business fractured maintains confusion in the marketplace, which confers power to the manufacturer and distributor, and away from the CI business owner. If you dont believe me, just look at where the biggest growth in the market is these days. It is in manufacturing and distribution. Remember that AVAD didnt exist 10 years ago. Neither did Norteks large CI division.
There will be a time when the average CI dealer breaks the $5m ceiling, but this wont happen for many years to come.
A Business Thats Hard to Sell. Its too difficult to put a value on a CI business. If the owner leaves, then it is worth less, because most companies are built on the strengths of a few key individuals. And without a repeatable process, the successful CI business is simply a really profitable venture for one guy. Like a fancy psychiatrist on Park Avenue, the CI business owner may find himself living in the lap of luxury. But when hes ready to retire, the business closes with him.
Want to buy a Lens Crafters franchise? No problem. The price is set, the process is defined, and the returns are predictable. Want to buy a CI business? Good luck.
So Where are We? To call the CI business young is an understatement; the business is prenatal. But this business, like many others, will follow a predictable path. In the beginning, while demand exceeds supply, companies can afford to make mistakes while they learn. Processes can be explored and abandoned. Sloppiness in business is begrudgingly accepted. Thats where we are today.