Cleaning Up in America: How to Start, and Diversify, a Small Business
America, The Land Of Opportunity
A place where dreams come true and millionaires are made every day. A country with a free market system where hard work and a good product or service can make you rich. The opportunity for personal success and financial independence is alive and well in America. Every four minutes another person becomes a millionaire in America. As of 1996 over 3.5 million families had a net worth of one million dollars or more. And it’s not from winning the lotto. It’s from hard work, smart decisions, determination, a good idea, a little luck, a strong desire to succeed and a personal refusal to accept less than success. There is a good reason why 750,000 new businesses are started each year in the USA.
Where’s The Money?
When starting or buying a business it’s important to give some thought to future trends and the stability of the industry you are entering. As an example, high technology industries such as research, communications, electronics and computers are growth industries. They are tied to the future and will continue to grow, as will software, information processing, specialized marketing and Internet related activities.
Cleaning and building maintenance services are good because the need for them goes across all industry lines and applies to residential markets as well.
However, the cleaning industry is changing. Team cleaning and back pack vacuums are increasing production, carpet and fiber manufacturers are getting into the cleaning business in a big way, robotic floor scrubbers and sweepers are available and we now clean for health instead of appearance alone. Modern buildings are on the verge of being designed to be self-cleaning with surfaces that repel and oxidize soils.
Other considerations include such things as how many possible customers there are. In the US there are over 15 million businesses and 100 million residential units. Any way you look at it, that’s a lot of places to clean. Another factor is value. Maintaining a low cost tile floor at 12 cents a square foot does not pay as well as maintaining a costly marble or wood floor at $1.30 per square foot.
The cost of the service one provides generally relates to the value of the surface being maintained. For the most profit, identify and target niche markets as a specialist, charge what you need to earn a good profit, and forget about the competition. Don’t follow someone else’s low price example to the poor house.
Niche markets in the cleaning industry that offer good profit and opportunity for growth include such services as: house cleaning, pressure washing, specialized floor care, cleaning for health and Indoor Air Quality, contract management services, hood and duct cleaning, fire, water and odor damage restoration, and full service packages that include all the cleaning and maintenance services a customer needs. For the most profit and ease in marketing, specialize in a geographic location and a type and size of customer, and then penetrate the audience deeply.
Good markets exist or can be developed for not only general or specific cleaning services but also supplies, tools, equipment, chemicals and management services that reduce costs by improving efficiency and production.
As for the size of the cleaning market in the USA, the figures I have seen range from 40 to 60 billion dollars per year, depending on what is included. It appears to be a large and growing market that will remain stable for the next 25 to 30 years. At the same time, future growth down the road 15 years will also exist in foreign and third world countries who do not yet understand the importance of providing a clean, healthy, and safe living and working environment.
Your Options To Get Started:
Starting From Scratch
The first and most difficult approach, but the least expensive option, is to start a business from scratch. Identify an area and a service, pick a name, get a license and some business cards and you’re in business. Now all you need is customers to buy what you’re selling and employees to do the work. This is by far the most common way to start a business. And it’s also the most risky. It is estimated that as many as eight out of ten businesses that start this way close their doors within three years. It’s the old story of easy come easy go. With any business, the hard part is not getting started. The difficult part is making money and staying in business. That’s the real challenge and where the hard work comes in.
Those with money and expertise generally expand by purchasing or acquiring existing businesses. They look for a business owner who wants to get out and buy him out with a small down payment and a one or two year pay off plan based on the income the business generates.
This approach has many benefits. The buyer gets an up and running business that has employees, customers, income and hopefully a good name in the community. In most cases the existing owner is willing to stay on for a set period of time to assist in making the transition as smooth as possible. This on the job training means a much smaller loss of existing customers, employees and cash flow.
This approach is the safest as long as you have the money for a down payment and the management expertise to operate the business.
Alliances, Partnerships and Joint Ventures
This type of business arrangement is more in line with how companies will operate in the future: agreements that bring together groups of people with ideas and abilities that compliment each other and allow them to accomplish more by working together than when working alone.
Risks and Challenges
To build a successful business you must be willing to give up many things that others take for granted. The business gets your time, energy and moneyall in the hope that not too far in the future you’ll get a return on your investment.
Federal, state and municipal governments all have a long and growing list of rules and regulations and forms to fill out, along with fees and taxes that must be paid on a regular basis for the privilege of doing business in their jurisdiction.
Finding and keeping good employees is a major challenge. Thorough screening, on-going training and close supervision are a must on the job today.
The competition is fierce. Established businesses have an inside road as they are already servicing most of the accounts you will also be interested in securing. It takes time and effort to establish one’s credibility and position in the community so you have an opportunity to not only bid on but be awarded the more lucrative contracts.
Contrary to what most people think, the larger accounts are not the most profitable or common. There are far more potential small and medium size customers than there are large customers. Generally the larger the account the more sophisticated the customer. Large accounts have more detailed
specifications and the contract will be more slanted in their favor. They know what to watch for and will administer the contract more closely than a small or medium sized account.
Part II Diversification
Diversification is another great way to increase your profits, or one of the worst things you can do to yourself and your business. The following guidelines are designed to help you make the right decisions that will add profits to the bottom line and not gray hairs to your head. As with all business advice, there are no guarantees. Use common sense and proceed at your own risk.
Diversification can be defined as offering a different type of service to an existing or new customer. Expansion would be defined as providing services related to those you already provide to an existing customer.
Generally, expansion is a better way to start. It’s easier to manage, more profitable and doesn’t require a new customer base, because you’re finding additional ways to earn more dollars from current customers.
For example, if you offer carpet cleaning, you may also offer drapery and upholstery cleaning, high pressure washing, topical treatments or other services and products related to carpet cleaning. You’re already in the home or business and, assuming the customer is satisfied because you’ve done a good job, chances are they’d be happy to have you provide other related services as well.
This also fits in with future trends in marketing, of finding ways to get more dollars from your existing customer base instead of looking for large numbers of new customers. If you look at your existing customers over a longer period of time, they have a much greater value than just a monthly charge. If you get $1,000 from an account on a monthly basis, the account is worth $12,000 per year; over five years, it’s worth $60,000; over ten years the value is over $120,000 dollars. In reality, the potential value of a customer is much greater than the monthly invoice amount. If you add on increases, additional services and the company’s growth potential, the value goes up considerably.
Let’s take a quick look at the range of additional services one might offer:
Specializing in a certain type of service or area, such as doctor’s offices or parking lots, is an effective marketing tool. When considering expansion or diversification, you may wish to operate under a separate company name, with different crews or utilize subcontractors for each specialty when first starting.
In most cases, add on services for a smaller contractor, at least in the beginning, won’t generate adequate revenues on their own to be a completely independent, stand alone venture. They simply can’t generate enough income because most of the larger accounts are controlled by established contract cleaners. They have the customers and they’re going to either subcontract or buy the equipment themselves. Trying to start a carpet dyeing, blind cleaning business, or any other add-on service, and making a large profit solely from it, is questionable. However, as an add on service for an existing contractor with a sufficient customer base, it can be very lucrative right from the start. In addition, the new service may open the door to additional accounts and it gives you a valid reason to contact an existing or potential customer with something new to offer.
Analysis, Research & Planning
Are you and the existing business capable of handling the demands that offering and providing a new service will create? You must have your existing business well organized, operating efficiently and profitably before considering expansion or diversification. Offering new services will place additional demands on your ability to perform as a manager, to market and supervise the employees doing the work. One of the worst things you can do in a business that’s having financial difficulty or management problems is to complicate an already delicate situation by attempting to expand or diversify at the wrong time.
Other important questions to ask yourself are:
- Is the existing office space and support staff able to handle additional calls, correspondence, bids and invoicing?
- To what degree will offering the new service interfere with the company’s ability to provide quality service to existing customers? You must be careful that you don’t dilute your focus away from your primary existing money source.
- What expenses are involved in setting up a new area?
- Equipment and chemicals
If you offer a new service today, how long will it be before the marketing kicks in and starts generating leads and customers? Are you in a position to financially cover costs for that period of time?
- What is the competition like?
Don’t enter a crowded field with low profit potential. Develop detailed business and marketing plans. Make sure this is worthwhile before you commit to increased costs for equipment, labor and marketing. If the decision is made to proceed, once you do start, monitor costs and income to prove that the profit is really there.
- . What safety, environmental and hazardous waste concerns apply? Are special permits, training or certification required?
- . What equipment and vehicles are needed? Can they be leased, rented or purchased used? How about cost, maintenance and operation?
- . Do you have adequate production, supervision and marketing staff to handle the increased workload or will additional staffing be required? If you don’t have the technical expertise required, where are you going to get it? Can you hire someone who has the required expertise to work for you? Can you learn the skills yourself or hire a subcontractor to get the venture off the ground?
One of the key aspects of providing additional services is staffing. That’s really what you sell; it’s not equipment, products or uniforms, it’s the people who do the work. When you expand or diversify, you need employees to serve your customers. From day one, begin training back up support, so you’re not caught in a real bind should your key person become unavailable for whatever reasons.
- Where will you get customers?
Your present customers are always your best and least expensive source of new business and additional income. However, selling to your existing customers alone may not generate the level of income you need to make a new venture profitable so it can stand on its own. After existing customers have been tapped, you will need to offer the service to a more expensive and difficult to penetrate audience.
Marketing is the life blood of every service business. It is critical that you develop a detailed marketing plan that includes who the potential customers are, how you’re going to reach and convince them, what kinds of costs you’ll incur, and, most important, how much expense, income, and profit you will generate over a set period of time. Look at services that customers need several times per year and can be sold on a maintenance contract versus a one time service call. This will simplify sales, scheduling and allow for increased income and profit from repeat business.
And there are certainly others that I haven’t thought of. The key is to identify the most appropriate and profitable for you, realizing you can’t do everything and that specialization sells.
Opportunity Is What You Make Of It.
In spite of the risks and challenges I have outlined above, there is money to be made in the cleaning business. The world is a dirty place and it’s getting dirtier by the day. The public is more aware than ever before about the importance of cleaning and indoor air quality and their relationship to personal health and productivity on the job.
Dirty has become socially unacceptable in America. As this awareness continues to increase in the future, the importance and value of cleaning services will continue to rise and with it will come new opportunities for business and profit.