- Why granite countertop businesses are worthy of your investment
- How home service businesses in general are recession resilient
- How to transition from owner-led to management-led structure
- Key pitfalls of that transition in the granite business
Granite countertop companies can make excellent acquisition targets, even in economically trying times.
It’s often said that kitchens sell homes so an upgrade to stone countertops can go a long way toward increasing your sale price.
Let’s take a look at the granite countertop industry in general through the experience of Acquira’s Ken Lavertu.
The company had been around for about 15 years before Ken purchased it and has around 20 employees. It fabricates and installs stone countertops in kitchens and bathrooms. This includes customers who want to remodel their kitchens, work with cabinet makers, and contracts with builders.
State of the Granite Countertop Industry
The global countertop industry stood at just under $90 billion in 2019 and is expected to grow to just over $110 billion by 2027, exhibiting a CAGR of 2.8% during the forecast period. Natural stone makes up approximately one quarter of the total.
The general upswing in the global countertop industry coincides with an increase in the number of consumers who are seeking durable stone like granite. Consumers are choosing this material because it has high aesthetic appeal and is extremely durable.
Granite products are resistant to cracking, largely scratch-free and extremely heat resistant.
Asset Heaviness: A Hedge Against Recession
While many of the companies that Acquira works with are considered recession resilient because of their home services offerings, this isn't necessarily the case with granite countertop companies.
One of the main benefits of any home service business, whether that is plumbing, HVAC or electrical, is that the industry is largely recession-resilient, says Brian Stroh, director of integration at Acquira. He is also serving as the ACE Integrator at Ken’s business, overseeing the post-acquisition growth process.
“Those businesses are recession resilient, because if you live in Florida, and your AC goes out, it doesn't matter whether there's a recession or not. You need the AC fixed. You live in Minnesota, and it's winter and your heat goes out. Same thing. So, you know, those businesses are turning 24/7,” says Stoh.
That makes them a savvy investment opportunity and one that Acquira prefers.
But what of the granite countertop industry? These types of companies could be seen to be at the whim of economic tides – after all, it's not like you NEED to remodel your kitchen. So when it comes time to start cutting costs, these aesthetic home improvements are often the first thing to go.
However, many of these types of companies are very asset-heavy. Ken's business had $1.5 million in assets and inventory when he purchased it, which can serve as an excellent hedge against a recession.
Considerations When Looking At Granite Countertop Company
Good Margins, Large Addressable Market
Ken’s business manufactures and installs the countertops, with a net margin of around 20 to 30 percent. Another attractive selling feature for the industry, says Brian.
“They are solid businesses with solid margins,” he says.
Another advantage of home services businesses like granite is that they have a large addressable market. Ken’s operation does a lot of installs within a 25-mile radius, sometimes even reaching into nearby Georgia.
“That's a pretty good-sized area that we draw from,” says Brian. “We have a large addressable market space.”
The same cannot be said about restaurants. It’s uncommon for people to travel 45 minutes to a restaurant unless it is particularly special. There are lots of restaurants nearby to choose from.
It’s also relatively straightforward to increase that addressable market share by maximizing digital marketing, says Brian. This is something that many businesses, particularly small ones, fail to capitalize on, perhaps only relying on one company to, say, buy Facebook ads.
“It's also the type of business that we can do a good job in increasing their addressable market share through our digital marketing,” says Brian.
Revenue Per Employee
Breaking revenue down into different segments is a helpful way to see where the company’s margins are. Revenue per employee is calculated as a company’s total revenue divided by its current number of employees. This metric shows you roughly how much money each employee generates for a company. This is useful when looking at historical changes within a company.
Granite countertop companies often show high revenue per employee, as was the case with A1 Granite. “We can put out quite a bit of revenue and have a lower employee count than you would think,” Ken explains. “We do subcontract our installs. So those are a separate expense, but if you actually count the employees, it's very profitable.”
Revenue Per Job
While revenue per employee looks at how much money an individual worker brings in, revenue per job helps you allocate resources more efficiently.
In the granite countertop industry, this metric can be a great way to identify potential changes you can make to the operations that can increase efficiencies and identify what types of jobs are the most important. Let’s use Ken’s company as an example.
The jobs that his company handles often come down to how hard the stone they’re working with is. For example, there’s one type of stone called quartzite that is the hardest stone the company works with and so it takes more time to fabricate than a basic granite or quartz stone. Using quartzite, it could take an entire day to fabricate one kitchen, depending on the complexity and size of the job. That uses up resources for other revenue-generating jobs.
With that information, Ken is able to look at each job and isolate it by the type of material being cut. He can then make decisions based on time and cost, and make sure the company is charging accordingly. It also impacts what types of materials the company promotes to its customers.
Revenue Per Customer
Revenue per customer is an important metric because you want to avoid being overly reliant on a single source of income. When looking at any business, you should be aware of potential customer concentration. If a single, high-paying customer suddenly stops working with you, that can be very harmful to a company if it isn’t properly diversified.
Of course, this is done during the due diligence phase. But revenue per customer is an important metric after the deal closes too. “Maybe we have somebody that only gave us a couple of jobs last year and now they’re giving us a lot,” Ken says. “I want to be able to know that and maybe court or incubate that relationship more.”
The inverse is true as well, according to Ken. If you notice a customer is fading away, you can take steps to improve the relationship. “It just helps to be intelligent about who we're talking with,” he says.
The first step is to actually track these metrics. You’ll find that some of these metrics aren’t being tracked within companies that have operated for many years. But they can offer a glimpse into how you might make decisions to improve the company’s overall revenue sources.
Can It Be Automated Or Systematized?
Anyone looking at buying a business should be thinking about opportunities to increase efficiencies during the due diligence process. Many businesses that have been around for a long time have entrenched systems and procedures that can be automated. Those systems that can’t be automated can often be made more efficient.
In Ken’s case, while the company was using an ERP (Enterprise resource planning) program, a lot of their work was still done on paper. After identifying the problem, Ken was able to find a new ERP that will help things run more smoothly.
“It’s a better system that can do more and give better reporting, better metrics, better communication,” he says. “At the end of the day, it will give us more capacity per employee, because you know, they're not running to each other with folders.”
Implementing effective systems is one of the most tried and true ways to grow a business. In a business like Ken’s, it’s almost guaranteed that the company could be tripled without a meaningful capital expenditure (ie: having to upgrade space or equipment) investment. Simply by investing in implementing the right systems, the company will grow.
Other Growth Opportunities
Growth opportunities within the granite countertop industry might not be as obvious as they are in other sectors, but they certainly exist.
For example, it’s difficult to open up another business in another market simply because of the large and expensive machinery required to do the job. Then you need to find the real estate to actually accommodate that heavy machinery and the staff to operate it.
However, it is possible to grow by acquiring another company. Another way is to open up a showroom in another community. If there is a nearby city, it might make sense to set up a location with a few salespeople to show off your products rather than investing in an entirely new production center. Both of these are options that Ken and his team have already considered looking into.
“But only the showroom with just one or two salespeople in each. And we market ‘come to our showroom’ but we do all the fabrication and heavy industrial work here,” Ken says.
Seasonality is something to be aware of when acquiring a business. This is any predictable change or fluctuation that happens at the same time each year. Seasonality can be difficult for certain home services sectors like HVAC companies (though, these slowdowns can also offer great growth opportunities through things like subscription services).
Fortunately, granite countertop companies don’t see much seasonality. There are slight slowdowns around Christmas time, according to Ken. But between October and December, there tends to be a ramp-up in jobs as people want to get their kitchens done before their holiday parties.
“There really isn't a lot of seasonality,” Ken says. “It's not that you never have to slow times because you do, but it's very hard to predict that.”
While it can be difficult to predict slowdowns, Ken also identified an opportunity: The previous owner had done little-to-no online marketing. That led Ken to invest in a new website and digital marketing strategies that will hopefully generate customers through the slower times of the year.
Searching For The Right Business
One of the challenges in buying a granite countertop business is finding one that fits your specific investment thesis.
In Ken’s case, he broadened his search to include nearby states and ultimately uprooted his family from South Carolina to move to Florida.
“I started kind of widening what I was looking for, but still [with] the investment thesis of buying a business that was recession resilient,” he says.
The good news is that the vast majority of small businesses are owned by Baby Boomers and many of them are retiring and looking to sell. Roughly $10 trillion in small businesses are expected to change hands between now and 2029, and many of those are in home services like granite.
Roughly $10 trillion in small businesses are expected to change hands between now and 2029, and many of those are in home services like granite.
Once you’ve actually found a business that fits your investment thesis, don’t forget about the personal connection, says Ken.
Oftentimes the owners of these businesses have put years or decades into growing their operation and they want to see them succeed.
Ken says he immediately connected with the previous owner of the granite business on a personal level, enjoying meals together and meeting family.
“It was really his baby,” says Ken. “And he wanted to do a clean handoff to somebody who could really take care of his people and his clients.”
It can be much more difficult without that personal connection.
“We didn't run into the typical hang ups, I think that a lot of acquisition entrepreneurs (AEs) run into where the buyer starts nickel and diming and the seller starts dragging his feet,” says Ken. “Neither of us did that.”
Moving From Owner-Run to Management-Run Teams
One of the key steps in purchasing a granite business like Ken’s is to move from an owner-focused model to a management-led one, says Brian.
“You have a culture that’s built around an owner,” he says. “So when that person leaves, there's a huge vacuum and oftentimes a cultural vacuum that happens and that new owner steps in, you've got 20 employees looking and saying, Okay, now what?”
Many of these businesses have been operated by a single individual who is central to all aspects of the business.
Instead, you want to transition towards an effective management team who will hold meetings, identify and solve problems, make sure that processes are tight and concise, compile job descriptions and complete performance reviews.
Moving towards a management-led operation should also include creating standard operating procedures(SOPs) for all tasks as well as the implementation of key performance indicators (KPIs) to ensure everyone on the team is held accountable.
This is Brian’s speciality, and he is helping Ken with that process.
If you’re looking for guidance on how to move from an owner-led model to a management-led one, check out Acquira’s ACE Framework.
“What I'm really trying to do is to create this leadership team,” says Brian. “Make them understand that they are now the decision makers for the company.”
This team can include a sales manager, an operations manager, a finance manager and a culture manager, or any combination thereof.
Easing Into The Transition
One of the major stumbling blocks to taking over a business is to be as open as you can be, says Ken. You obviously can’t tell all the employees before the right time but keeping them in the loop is crucial.
Ken says he and the original owner were very transparent during the transition and no one was blindsided by the change, except for two employees who largely worked out of the office and had missed the announcement.
It was important to Ken to speak directly to those two employees to put their fears of change at ease.
“It was good to talk with them. Let them know that I wasn't in here to you know, steamroll a bunch of changes on my first day. I also didn't promise that there wouldn't be any changes,” he says.
You’ll have to walk a fine line implementing the most necessary changes.
Brian says this is a delicate process and one that he often oversees during his work with Acquira.
You can’t make too many changes too quickly.
“You're going to have a mass exodus, because people are going to be like, ‘listen, nobody likes change like that,’” he says.
Instead, you need to make the changes that you see as necessary without rocking the boat too much at first.
“This is a tap dance that really happens quite often,” says Brian.
You should also be wary of key person risk, whether that is the owner or a particular salesperson who procures the majority of potential business, says Brian.
Ken will continue to get advice and insight from Brian under Acquira’s ACE Framework, helping him transition from an owner-led business to a management-led one.
If you’re just at the beginning of your acquisition journey, don’t worry. Ken started with our Accelerator program, which is designed to help you close on a business in half the time at half the cost it would take you to do on your own. Sign up for the Accelerator now to learn how we can help.
- Don’t be afraid to look outside your geographic area when looking for a granite business
- Granite countertop businesses have a large addressable market that can be maximized through digital marketing
- The transition to a management-led team can be tricky but go at a reasonable pace
- Don’t go it alone and search out for all the help you can find during the process
Acquira is a business acquisition in a box service. We help entrepreneurs buy businesses and we invest in them and their chosen businesses. We are here to help ensure that each business we work with is posed to make the biggest positive impact possible for its owners, employees, and community.
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