Starnet remains an advocate and research consultant for our membership, bringing awareness to broad trends in commercial real estate, the construction industry, and general business topics that impact our member businesses beyond commercial floorcovering. This effort informs their strategy as they create the interior environments that allow their client organizations to thrive in their local markets. For the past few years Starnet has focused on the business model challenges our members are experiencing, helping the shareholders work on their business while their teams of associates work in the business:
- Talent Model
- Operational Model
- Technology Model
- Data Model
With the help of supporting vendor partners and the Starnet Service Providers focused on technology, Starnet has successfully completed two Tech Summits in 2024. We are working hard with members to dial in their technology models and data models. These live events bring a mix of members from across the country and a specific group of technology partners involved in our network for a two-day immersion in the amazing resources now available to the professional interior contractor. Each member comes with their own goals for their company in securing technology resources and education, which will lead them to better Data Models. They also enjoy sharing success stories and best practices with their peers who are working through the same challenges in technology adoption.
One of the recurring themes from these summits is the discussion around culture vs technology. Members struggle to set a starting point. Most of the Starnet members have very successful operations and their customers praise them for their service and high-level execution of projects. Adding technology to those successful organizations is difficult, because the motivation for change is low. If it is not broken or failing, why change? On the other hand, even the best organizations should expect a 20% increase in productivity and increased profitability from intentional technology adoption.
Recommended Future State
To unleash the freedom and success good technology and data models could bring to a professional flooring contractor business, our network recommends a best practice in operating models – the team selling structure. A team approach includes four positions:
- Salesperson
- Estimator
- Procurement Manager (also referred to as Job Coordinator or Project Manager - Internal)
- Field Superintendent (also referred to as Installation Foreman or Project Manager – External)
The exact titles will vary by company, but this type of structure brings efficiency through an “assembly line” model. Each position focuses on key competencies and abilities. This is different rather than multiple responsibilities needing multiple abilities in a traditional “cradle to grave” operating model.
The team selling structure has been proven in the Starnet member companies to drive high gross profit levels per employee and thus higher profitability. The key adjustment for this structure is a reduced compensation to the salesperson role on percentage of gross margin per project. Historically, cradle-to-grave salespeople were paid a relatively high percentage of the gross margin. In the team selling structure, the salesperson is paid a lower percentage of the gross margin, but the glass ceiling on total revenue is lifted. By adopting relevant technology models and data models quickly, the top-line revenue for an individual salesperson is limited only by installation capacity and project calendars, not their personal limitations of bandwidth, accuracy, product knowledge. It is much easier in a Team Selling Structure to increase the product offering or service scope, thus creating even more opportunities to serve clients at increasing levels of revenue.
A traditional cradle-to-grave salesperson is typically stretched to generate $300,000 in gross profit, which would earn $100,000 to $120,000 in income by industry norms. Their activity in that scenario is highly inefficient and caps their top-line sales capacity. Adding more products or service scope is extremely difficult.
Team selling structure salespeople make more compensation in a well-executed model due to higher closing rates and top-line sales. A team selling structure salesperson often generates $1 million in gross margin, which would move their compensation up into the $175,000-$200,000 range based on industry norms.
Most members employing team selling structure are “pay when paid” including any retainer. This keeps the procurement manager and field superintendent roles focused on client satisfaction and payment tracking until the project closes completely. In the team selling model, the roles of procurement manager, estimator, and field superintendents are included in the strategic variable compensation plans. When balanced properly, this unleashes company productivity and encourages all team members to offer more product and service capabilities to expand top line sales.
A key component of team selling structure is that the teams must manage client communication effectively. The salesperson and estimator must focus on the sales process from lead generation to receiving a signed contract. Once they have the signed contract, they need to be disciplined in their handoff of that project and immediately pivot to close new contracts. The procurement manager role and field superintendent role must focus on executing the project from signed contract to payment. The key to success is keeping the salesperson out of the project execution once a signed contract is secured. Your hiring process, training, and key performance Indicators (data model) must reinforce this behavior to deliver the numbers consistently.
Implications
By far the weakest area for most members is their data model. Data model excellence is often buried within the institutional knowledge and business instincts of these entrepreneurial companies running cradle-to-grave operations. Despite the thousands of years of experience inside member companies, the limited data they have is often marginalized due to inherit bias and subjective business positions that plague generational construction companies. As members scale to open more locations and cover multi-state service coverage areas, the lack of data fidelity limits their capacity to grow. Lack of data models also limits their ability to deploy standard operating procedures and quality control incrementally, which is where significant productivity gains are possible in the team selling structure.
Lack of data also impacts their clients indirectly, which to this point has been excused by the marketplace. Clients have always accepted lower prices as a substitute for objective data that would support quality or performance standards based on provable data. “We have experienced installers who regularly attend manufacturer training,” is a common substitute for “Our project portfolio for 2023 was 725 projects, totaling 14 million square feet, in six major market segments. Our teams delivered 87% of that footage punch-list-free and 99% rework-free, with zero lost time accidents or injuries. Each of our field team members are required to attend 12 hours of hands-on continuing installation training each year and in 2023 our team averaged more than 18 hours of installation education.”
Those numbers may not be reasonable to communicate today, which is the entire point of capturing the data. Nothing can be significantly improved if it is not measured. The substitute for the lack of data to defend value is a lower price. Congratulations to the lowest bidders, who will always lack data model excellence. The tolerance for inferior data model capability is rapidly coming to an end.
Commercial real estate (CRE) is rapidly adopting more and more CRE Tech, which will impact every part of the industry. Not only will the services expected and offered by interior contractors expand, but the data models also accompanying service offerings will be integral to the value proposition.
Moving to the team selling structure and enhancing that with solid technology and data models through supporting vendor companies provides a bright future for our Starnet members and any specialist flooring contractor moving to the professional interior contractor business model.
