[EDITOR’S NOTE: VITAL is in its second year of monthly CI Business Mastery Classes where it addresses important CI business topics via webinars. Each class is supported by an industry brand. VITAL has agreed to share some of the information from these classes in a monthly column of highlights from its most recent webinar. The topics are the same as the previous year’s classes, but the content is refreshed.]
This month we look at the CI business model from a big picture perspective and help determine how much of it you’re currently taking advantage of. We will also discuss actions you can take to optimize your business.
CI businesses have common growth patterns that we have broken down to five levels, from the smallest amount of revenue to largest. The levels are Foundation, Breakout, Organization, Optimization, and Structure.
Foundation: The first level runs up to $1 million in annual revenue. These companies commonly have anywhere from one to five employees, most often four or fewer. In Foundation, the owner is usually doing it all — selling, managing, ordering, installing…doing whatever is needed to keep things going.
In order for the business to grow beyond Foundation, there are a number of key factors to focus on. One of the most important and underrated is a good admin. Many dealers make the mistake of waiting too long to hire this person or choosing someone without the right skillset. The goal of an admin at this size is to take as much off the owner’s plate as possible.
To grow beyond this level, there also needs to be a focus on revenue, and you should do it without overcomplicating things. Your path to success at this size is all about action and focus. You must take action every single day. One of the quick hacks is to expand your team through contract work or outsourcing. Look for those partners that can help you so that, as you ebb and flow through the business at this size, you don’t have to worry about permanent full-time employee expenses.
Breakout: At this stage the company is making up to $2 million, and we call it “Breakout” because the average integrator doesn’t reach this benchmark. Those who do have the opportunity to keep going. At this stage, you need to either mentor the admin to take on more responsibilities and become the office manager, or replace this person. The admin is now going to start taking on purchasing and warehouse management, as well as possibly bookkeeping.
Growing beyond this stage takes partner relationships. It’s incredibly difficult to grow past a couple million dollars in revenue without having those outside advocates acting as salespeople for your business. You also always want to be interviewing for entry-level technicians. The most successful integrators that continue to grow through these chasms are training their people up through the organization. And they do this by feeding the bottom — looking for technicians who they can hire and who identify with their company culture and the values of this business. You want to consistently be upgrading your staff.
Organization: These are companies doing $2 to $4 million a year with 10 to 20 employees. There are even fewer organizations that reach this level of growth, which happens to be a very profitable and sustainable size. In order for a company to sustain this size without driving the owner into the grave, there needs to be organization behind everything they’re doing. To continue to drive through to the next chasm, there needs to be focus on documenting processes and standards. It’s hard to maximize profit when growing beyond $4 million if you don’t have process and standards documented. You need to reduce friction everywhere throughout the organization, which allows you to have a focus on productivity and efficiency.
Optimization: At this stage — from $4 to $6 million — we start to see more sophistication on the sales side, including an intentional way to hire, develop, and manage your sales talent. This is where you’ll start to see a junior sales role created that provides support for the established salespeople.
At this size, a financial controller makes sense. This is no longer just a job for a bookkeeper — you need somebody who understands accounting at a much deeper level than a bookkeeper does. We still recommend outsourcing the CFO function either to us at VITAL or someone else. You want to have a CFO-level strategist looking at your numbers every single month. That strategy piece does not need to be in-house.
As the name signifies, optimization is key here. Otherwise, you risk doing more work for less profit. To continue to drive through the next chasm, there needs to be a focus on managing your unbillable employees — the people who are not doing field work. Be very careful with who you’re hiring. You also want to continue to diversify your offerings. Getting beyond the $6 million range is tough if you’re selling AV and control systems alone. This is where we see the successful companies diversifying with solutions from top to bottom, whether they’re doing it in-house or partnering with another provider.
Structure: Only a small percentage of dealers will grow beyond this $6 million revenue stage. The key to growing in a profitable way is to create structure, reduce chaos, and focus on financial efficiency and leverage. This means producing the greatest top-line and bottom-line financial outcomes from the staff you have, and being careful to measure efficiency and productivity to ensure that your team is performing at their best.
To continue to grow beyond $6 million, there needs to be a keen focus on outsourcing or having some internal HR support. You will also need to have solid partnerships and relationships. There’s just not enough referral business or marketing money that you can spend to grow this size.
Here are a few key elements to remember as you grow:
Stop at the landing. That means spend some time at whatever revenue strata you’re in so that you can maximize all the elements of that level before you move on. If you move on too early, you risk having a ton of chaos and less success.
Continue to focus on profit as you grow. The better you understand your numbers, the more accurately you can predict whether you’re investing in growth or if you’re just becoming less profitable.
Know that growth consumes cash. This is another reason to understand your numbers, because the faster you grow, the better you need to understand your cash flow. Otherwise, it can get wildly out of control.
You will outgrow some of your people, and some of your people will outgrow you. Make sure that you can take advantage of those top-grading opportunities when they happen.
For more information about the CI Business Mastery Classes and the other services VITAL provides, visit http://growwithVITAL.com.
