Growth is good, and, obviously, it’s what most companies strive for. But expanding a company’s service market into an entirely new geographic area is a risky move that is as potentially dangerous as it is profitable.
The carrots of additional profits, less dependence on one market and pride in owning a growing company are too enticing to dissuade many green industry professionals from expansion, however.
GO TO THE MARKET. So you want to grow your company into new markets? Well, where are you going to do that? Choosing the wrong area to expand into dooms the expansion to failure.
“Experience has taught us you have to go where people live who are earning the money necessary to buy our services, and they have to live in a density to make it worthwhile,” noted Ed McGuire, president, The Lawn Co., South Dennis, Mass. “We’re also more willing now to go where the competition is more intense, because that’s where the customers are.”
Chris Senske, owner, Senske Lawn & Tree Care, Kennewick, Wash., relies on numbers to decide where his company’s next branch will open. “I’m looking for areas which are economically healthy, so I’ll take statistical information such as buying income figures or using the mailhouses for population counts and postal carrier routes broken down by income,” he explained.
McGuire also looks at how potential customers in possible new markets currently care for their properties. “A company has to understand what it’s currently doing that makes it successful and what characteristics define its best customers. Then find similar areas to the markets it’s already in,” he pointed out.
Some companies who have been extremely successful in their expansion efforts disagree as to the benefits of growing by slowly extending the reach of a service route from the same office. “I would characterize the majority of our growth as organic,” commented John Carson, division manager, Ehrlich Green Team, J.C. Ehrlich Co., Reading, Pa., explaining how their growth expands the reach of an office into potential markets. “When the revenue becomes substantial enough to justify two or three routes, we’ll open a new office,” he added.
Carson said a major benefit of this approach is using those initial service routes as cost-effective marketing tools. “People seeing the trucks in the neighborhood is really a significant source of business, and we have the salespeople then follow the trucks into an area,” he added.
Chris Davitt, vice president of landscape installation, Ruppert Landscape Co., Ashton, Md., commented that Ruppert also favors slow growth out of current branches. “In the large markets we target, companies can take small hops outward and soften the blow,” he explained. “Then you already have name recognition and market familiarity, and the money already invested in developing the company’s image will pay off immediately.”
“I’m really a proponent of companies thoroughly penetrating the markets they’re in before expanding. The problem, though, is there is a tendency to start doing jobs that take you further away from the core client base,” countered Dave Hanson, vice president, Environmental Care Inc., San Jose, Calif. “This ends up happening in opposite directions, and I think the managerial attention given to a job is directly proportional to the manager’s proximity to that job.”
Carson admitted keeping staff focused on maintaining their quality level of performing on core jobs can be a challenge. “In some cases, we’re willing to put a couple of guys in a hotel for a night or two to handle a number of jobs in an area. But you have to watch for the managers who want to send guys to jobs two states away,” he said. “Generally, we’ll only go into the next county and try to keep driving times under one hour. You have to maintain a strong local feel.”
In addition to finding markets which will support the business, Hanson focuses on finding markets which present a minimal amount of learning challenges for the new office. “We look at markets with turf types and landscape practices similar to what we’re used to,” he remarked. “This helps minimize the learning curve.”
SET UP SHOP. Having a long-range plan is obviously a key to any expansion effort, but it is especially important when it comes time to select an office location.
“We’re always trying to minimize the driving distance that will be necessary to get from the office to the customers,” Senske related. “We look for a prebuilt facility where we can get a three-year lease. It’s more difficult to predict the new branch’s short-term needs, but after three years we should have a sense of where the branch should be located and what type of facility is necessary.”
Besides location, selecting a payment method is the other big decision for setting up the facility. “We always enter new locations with a lease,” Senske noted. “It’s a cash flow issue as much as anything else because bank financing can require up to 25 percent of the price up front to buy the property.”
“Even though you’ll pay more per square foot for a lease, there’s no capital expense out front,” Hanson pointed out. “Plus, if you have to close down the market, the only cost is the remainder of the lease.”
Current employees can be valuable when opening a new office. “You’ll definitely have to expand the staff, but I recommend taking some people into a new operation,” offered McGuire, who emphasized the importance of the branch manager. “The most difficult challenge is developing the continuity between the branches. One of our new branches struggled at first because we had someone trying to put their personal stamp on the business. We want them to do things our way, however, because it’s been successful for us for 18 years.”
“We always try to open new facilities with current employees,” agreed Senske. “Usually, this is through promotion, so it’s good for the employees, and it makes for one less variable to worry about since we know the culture and operations will be what we want.”
While most companies expressed concern about embedding the corporate culture into the new operations, Carson actually looks for autonomous operations. “We call our facilities district offices, not branch offices, and we want the employees to have a sense of ownership,” he explained. “They set their own parameters for pricing, warranties, policies and so on. Then the employees are paid as a direct result of that specific district office’s profitability.”
GET THE NAME OUT. When the goal of expansion is increased profits, the immediate priority for a new operation becomes marketing, and contractors’ opinions vary on the best way to get a company’s name out.
“We continue to do what a lot of companies do by focusing on direct mail efforts,” noted Senske. “We send out multiple postcards and self-mailer pieces to the same houses at a rate of one per week or 10 days through the spring. Then we follow up with telemarketing after the second or third week.”
“We focus on the people-to-people approach with full-time salespeople being the key to success,” countered Carson. “We’ve really seen a tail off of long-term results with telemarketing. We used to generate a significant number of new accounts this way, but you really have to do a lot of promotions and discounting to get these accounts, and the retention levels aren’t there.”
Telemarketing isn’t entirely useless, though. “It’s still a good way to prime the pump and generate some immediate revenues while the new office is attracting the long-term, valuable clients,” Carson admitted.
"This is one area we’ve really struggled with,” lamented McGuire. “We’ve tried just about everything - Yellow Pages, advertising, newspaper inserts, telemarketing - but we haven’t gotten the results we want yet.
“As a lawn care company, our focus is on getting in touch with landscape contractors who we can work through for referrals,” McGuire continued. “We try to get in touch with as many people working in or with our industry as possible in new markets.”
PROFITABILITY PLAN. Three years surfaced as the rule of thumb for growing a new operation into the financial black. “We commit about $300,000 over a three-year period to get the new branch rolling,” Senske commented. “So we know the new branch will cost the company about $100,000 a year in profits.”
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“Profitability will occur at different times for each branch depending on the market,” Hanson noted. “For the real positive returns, however, companies have to look long term. Expansion should not be entered into for immediate profits. It takes a long-term commitment in terms of people, money and energy.”
“We’re looking for profitability in three years, but there are real variables between markets in terms of property acquisition, labor and overhead,” Carson agreed. “Plus, most of the day-to-day expenses vary based on productivity, and that’s where management becomes truly important.”
“The biggest costs are related to marketing and acquiring customers,” Senske added. “We look for a at least 1,000 full-service customers after three years, but we’d really rather be closer to 1,500 customers. The problem is that it costs a great deal of money to build your company’s name recognition in a new market.”
The author is Associate Editor of Lawn & Landscape magazine.