Feeling Risky?

By Christina Lewellen
February 15, 2008
COLUMN : Talking to Dealers | Management, Channels

If I offered to hand you $15 or let you flip a coin to earn either $20 or $10, which would you choose? Taking a chance might mean I only fork over $10 to you but playing it safe means you give up the opportunity to walk away with $20. In this example, the difference is only whether you’re buying me one round or two, but what if the stakes are much higher? How risk tolerant are you when it comes to your dealership?

For this month’s issue, I got the opportunity to talk to some folks in the sunroom realm. Many of them started as window and door specialty retailers, or at the very least have always had windows and doors as part of their product line-ups. But through time and consumer demand and willingness to take a risk, they stretched out into other products and sparked their annual revenues.

A dealer I spoke with after I had completed my article told me that when he started his business in 1991 serving the Michigan and Ohio area, replacement window sales were on fire. By America-Wide Construction’s second year in business, the company had well over $1 million in sales from windows alone, says Paul Davis, president. “We sold the heck out of windows,” he recalls.

But as the dealership matured, the company took risks with new product lines, suppliers and geographic areas. “[In the early years], we’d set up at home shows and knock on doors. Everybody made money and everybody was happy. But since then, it’s changed a little bit and we’re much more diversified.”

Davis’s company now offers sunrooms, various window lines—including some fiberglass products—roofing, general contracting and other home improvement products and services.

Our sunroom feature on page 100 gives you some food for thought on this general concept of diversification. Sunrooms seem to be a trend that isn’t going away and can be a nice complement to window and door sales. There are some business considerations such as training your window crews to put up pre-fab rooms and making decisions on how to spend your marketing dollars, but the payoff can be considerable. Crown Sunrooms president Mark Wood points out that putting up one sunroom could equate, in terms of profit, to installing more than 150 windows. Hmmm - is that level of profit worth the risk of venturing into something new?

I don’t presume to have the right answers for your company but I will share the boiled-down version of an extensive education I received on Wikipedia. If we had all gotten marketing degrees we would know about this lovely little model called the Ansoff Product-Market Growth Matrix.
Basically, diversification is the riskiest of the four approaches because it requires you to acquire new product knowledge, new skills and refined techniques. As of the time of this writing, the all-knowing Wiki authors say this: “Going into an unknown market with an unfamiliar product offering means a lack of experience in the new skills and techniques required. Therefore, the company puts itself in a great uncertainty. Moreover, diversification might necessitate significant expanding of human and financial resources, which may detract focus, commitment and sustained investments in the core industries.”

OK, well that sort of sounds like walking away with $10 when you had a chance at $20. But let me remind you of this—Walt Disney diversified from cartoons to theme parks (good choice there) and Apple stretched from computers to hand-held gadgets for your entire music library (well done, indeed). With higher risk comes the potential for higher returns.

Those other blocks of the matrix remind us that safer growth comes from focusing on your existing products with your existing customers, your existing product with new customers and even offering new products—including sunrooms, gutters, awnings and glass replacement—to your existing customers. But picture this: Let’s say a retired couple pining away for some additional living space with a lot more sunlight sees your hot-off-the-presses advertisement for your new line of sunrooms. They give you a buzz and are impressed with your salesperson. While he’s sitting in their living room or shuffling them around your showroom, he also mentions the options that are available in your replacement window line. After all, wouldn’t they want the windows to match their new sunroom? A simplified example, perhaps, but not too far a stretch from reality based on the conversations I’ve had with window dealers who have taken a gamble with sunrooms.

Tapping a new customer base with new products can be tricky. If you have a good story about stretching your wings into new product lines while keeping your roots in windows and doors, feel free to send me an email. Did you take a chance on getting the $20 and have success?

You can reach Christina Lewellen, senior editor, at clewellen@glass.org.