Features - Formulas for Success

At $5 million and beyond, the resources and infrastructure required to run a smooth operation are a whole different ballgame.

October 4, 2013
Kristen Hampshire

You’re on pace. You hit a million and your operation is humming along, deflecting some economic backhand shots, but still in the ring and ready for round two – or three, or what about $5 million (or more)?

It’s a big benchmark, and getting there means changing the way you think about business. It may mean thinking like a business in the first place! At $5 million and beyond, rather than wearing all the hats, you’re passing them out to qualified managers. Late nights are spent strategic planning rather than plugging numbers into QuickBooks. Your infrastructure gets a corporate overhaul – you’re an “operation” not an outfit.

Lawn & Landscape spoke with three companies about how they made it past $5 million. (Hint: No one won the lottery.)

Growing up

It’s tough to say, “No, I can’t take this contract now.” But in the last 10 years, EarthWorks, has put a moratorium on new bids on a few separate occasions. “We said, ‘We appreciate the opportunity, but we are not in a position to take on new business,’” says Chris Lee, president of the Texas firm.

“We’ll explain that we’ve been blessed with great opportunities and growth, and at this point our focus is on maintaining our clients’ accounts and if we push it too much it will jeopardize the quality.”

Most people understand this. They are surprised, but they get it. “People realize that we really do care, and it’s not just about making money or building this huge company,” Lee says. But some people aren’t so happy when EarthWorks is honest about its workload and has to decline. “We’ve had people who are offended,” Lee says. But growing too fast by taking on more work than the firm can cover is a mistake EarthWorks doesn’t want to make again. The firm did about $13.5 million in 2012 and has increased its revenues gradually since Lee joined in 1998. Back then, the company was doing about $800,000, he says. And its focus was solely on high-end multi-family properties – ones with real curb appeal and visibility. Then Lee became one of the leaders – a “hungry” one who admits he loves the thrill of the chase and saw greater opportunity for the company if it would look beyond its very specific niche.

But building too fast has admittedly caused the company problems in the past. Most recently, in 2007-08, EarthWorks welcomed significant growth. “We were overcommitted and we couldn’t hire enough people to do the work,” Lee says. “We were hiring people at such a fast rate that we weren’t able to train them to meet our expectations. While they may have done landscaping in the past, it wasn’t up to our standards.” Mending relationships after an off year requires constant communication – and some humbling conversations. “There’s no letter you can write,” he says. “It’s a matter of showing clients you had a rough patch and that was an exception and not the rule.”

Lee says the first rule of growing past $5 million: Don’t outgrow your ability to perform, and don’t outgrow your capital. The key to successful growth is to put a long-term plan in place, Lee says. You want to know before resources will be stretched thin. If you take on more work, how many more people and how much equipment will you need? Do you have the financing and cash to back this growth? Be open to the future and prepared with a plan to tackle new opportunities when they crop up. As a manager, Lee says: “You have to get over short-term and the mentality of what’s going to happen in the next 60 days and think about what will impact you six months from now and beyond.”

Making it to, and past, $5 million is a gradual process. “You have to constantly look for how you will improve,” Lee says.

Power up by people

Much like plants, you’ve got to put the right people in the right positions at your organization in order to grow and thrive. At The Stockner Group in Rockville, Va., pushing past the $5 million mark occurred over a period of about eight years and involved diversification of the business and bringing on experts in these new services.

The firm had always focused on landscape installation. Then it cracked into the grounds maintenance market, serving homeowners’ associations and retail centers. “That rolled us into doing irrigation and hardscape installation, and now we have a large residential department as well,” says Gary Stockner, president of the third-generation family business his grandfather started. His parents took over in the 1980s, and since the late 1990s, Stockner and his two brothers have been running the firm.

They saw potential to expand the business, and that required looking beyond the company’s old bread-and-butter. But they learned the hard way that you can’t add a service until you’ve got a strong manager for it. “When we first started irrigation, we had someone in place, but it wasn’t a professional and the service floundered,” Stockner says. “Then, we found the right person with the right experience – a professional in the irrigation industry – and we knew him very well. We hired him and our irrigation business really grew.”

This person was a general manager of a large irrigation firm that was plowing through some financial troubles. Meanwhile, Stockner also courted a hardscape pro who was running his own business and decided to merge with The Stockner Group.

It’s a delicate discussion, feeling out whether someone would and should be part of the team. “You have to make the time to get the right people on board – not only those with knowledge and experience, but with personalities that gel,” Stockner says. “You can have one smart guy who knows everything, but that doesn’t matter if that person can’t work with the rest of your team.”

Stockner usually can decide whether someone is a match for the organization during a casual, but direct, conversation. “I sit down with them and tell them what I would like to do, how I would support them – we make sure we bring in the work – and what our goals are,” he says. “I tell the story of where we have been and where we are now, and where we think we can go with the right people in place. You can tell if you’re talking to the right person if all of this excites them.”

One of the toughest parts about hiring the right people – which Stockner says has been critical to the company’s expansion – is knowing when to fire the wrong ones. “When you don’t do your due diligence, you can make some bad hires. And you need to make changes in a timely manner if someone is not a fit for your organization,” he says.

Another challenge with growing significantly is managing customer service. “You can never lose touch of that,” Stockner says, noting that in spite of the volume, he personally visits large clients every six months. And, his team members are expected to treat every call with a sense of urgency.

He can tell by watching an employee 20 percent of the time whether that person is delivering great customer service all of the time. And by promoting a culture of transparency and high ethics, he actually has had managers come to him and say, “I made a mistake here and this is what I did to fix it so it won’t happen again.”

Building accountability is critical while growing a business to a larger scale. And so is managing the cost of growth.

And that is figured out as a management team at The Stockner Group. “Putting several heads together is better than one,” he says. “Everyone has a voice.”

Risk for rewards

“You’ve made it to the NFL,” says Doug Ehmann, partner in North American Lawn & Landscape in Charlotte, N.C. He’s talking about pushing past $5 million when you’re playing in a whole different league than when the business was $1 million or less and still a hands-on operation with modest staff and humble infrastructure.

That hasn’t been the case for a long time at North American. Ehmann started the business out of college, 28 years ago. For many years, he wore all the hats – and even as the operation grew, he managed the financials with an administrative assistant, an accountant and his own after-hours time plugging away at his home computer on basic business software.

In the $5 million league, hiring, training, sales, accounting, risk management, purchasing, delivering on your promises – every activity in the business demands a system with checks and balances so the owner can step back and be a visionary (at least for an hour or so) without concern that the whole company will fall apart. Rather than a laptop, you need a mainframe and server. “You need off-site storage, warehousing – your lease needs are larger,” Ehmann says. “And if you have 25 or more employees, you’re dealing with more government regulations.”

There’s also exposure to liability, he adds. “Your insurance and workers’ compensation costs skyrocket once you get past a certain number of employees.”

Overhead climbs, and costs follow. “My life would be a lot easier if I had 10 different companies with fewer than 25 employees,” Ehmann says. That’s because once you hit 25, you’re subject to more federal security, including federal verification of employees through E-Verify. But growing to and past $5 million has fulfilled Ehmann’s goals and provided many jobs, enabled the firm to reach exciting milestones.

Getting there meant building the infrastructure to support higher volume. Today, at $12 million, the company has four salespeople split between the two offices, Charlotte and Raleigh. There are two division managers, one for installation and one for maintenance. A human resources manager hires personnel to feed those two divisions.

Meanwhile, Ehmann ensures that the company’s exposures are covered. The firm handles hospital campuses and large corporate parks. The cash outlay to manage those jobs, and the risks associated with being on site, are far greater than with smaller commercial accounts. He must ensure that the cash is flowing to support big business. “The bigger the jobs are, the more you can lose if they are mismanaged,” he points out. “It’s easier to lose 5 cents on $5 than it is to lose $500,000 on $5 million.”

Basically, as you grow the stakes get higher. You’ve got to cover your company. There are more stringent regulations concerning truck safety, safety gear (glasses, footwear, vests) and licensing. “You are more regulated through OSHA,” Ehmann says, adding that he sends employees to safety training through their insurance company. “We have to be covered for millions of dollars worth of work as opposed to tens of thousands,” he says.

Of course, there’s risk for reward. “We have had to adapt to changes in the marketplace, and I wish the labor force were easier, but I wouldn’t change a thing about our business,” Ehmann says.