A lot of trades business owners feel that if they offer more services, they get to make more money off less people. But this isn’t how it actually works. We’ve worked with over 100 different businesses to help scale them and contractors make up the majority of those. To specialize or not to is a question with massive costs and consequences if you answer it wrong. So we’re going to go over how a business that specializes on one thing compares to one that does many so you understand how to answer that question for your business and you don’t lose all your money over one simple mistake.
The first area in which you start to notice a big difference is in the skillsets required to run it and how you develop additional skills while running it. Firstly, the specialist business is going to get many repetitions of the same situation in a tiny amount of time. Meaning being incredible at that trade is not hard to do at all. Even if you’re new, you can very quickly be one of the best in your area. And if you aren’t new to the trade, it’s hard to not be one of the best.
On the other hand, a more generalized business that offers many trades is not going to see the same situation very often or even more than once. Meaning you need a much wider skillset to get into it but also need to develop new skills almost immediately and with very little practice. This makes it not only harder to run but also harder to find and keep good employees.
Now when it comes to employees it really starts to get interesting and the problems can start to snowball massively. The first big issue is that you need to hire vastly different people with varying skills. This either means more people overall to cover all those skills or trying to find the once in a lifetime employee that has the exact combo of skills you need and is also as good as you need them to be across all of those skills. Leading to more complex interviews, the need to get more candidates and an overall more complicated hiring process. But there is more…
Let’s say you have a plumbing and HVAC business, you might be super busy with plumbing work but have 0 HVAC jobs to do. Well guess what, your HVAC employees can’t go fulfill the plumbing jobs. So now you have too little capacity for the total demand you have but you’re still dishing out the payroll costs of having enough capacity. You end up paying for something you can’t use. If you only do one trade, this isn’t an issue.
It does seem right now like having a specialty business is much better, but we’ll cover why that might not be the case in certain situations later. Now let’s cover what the difference is when getting clients. This is an area where theoretically the business with more services should have an easier time. But theory and practice can be very different and so is the case in this situation.
Double the services doesn’t typically mean double the money. Sure, you can sell more to the same people and a lot of the time this does make you more money, however, it’s not that straightforward. The first part is the operational difficulties that we covered before, more services almost always means more costs. Secondly, you have to choose the right services. Selling plumbing jobs and injury law services doesn’t really add up. Yes, in theory the same person could need both but needing one has nothing to do with needing the other. Meaning most of the time you’ll only be able to sell one.
By choosing the wrong services to pair, we also get another problem, you might not get referred for your other services. If someone came in for injury law help and you do a great job, they might refer you to the people they know, but they most likely wont be referring the plumbing side of your business. They never got plumbing from you so they don’t even know if it’s good. But more importantly, they probably don’t even know that you offer that. It’s important to pair up services that compliment each other and get brought up together. For example, if you sell coffee machines, selling coffee to make in them is a great pairing. Super easy upsell to pair with the new machine and now each customer builds your reputation towards one thing: good coffee.
Now you get why specializing or not specializing can be such an important question to answer right and why answering it wrong can be so detrimental. So which should you do?
The answer is pretty straightforward: If your business is small (smaller than $3.5 million/year), you’ll probably benefit from specializing in one trade. This keeps operations super simple so you’re not having to solve hard problems that have very little reward, it leaves you with simple, high leverage problems to overcome.
Now when you do get to that >$3.5 million/year range, you likely have the resources to pull off having more services correctly. This also might be something you need to do in order to expand within a specific area.
So that’s it, if you’re a big business, go ahead, add another trade. But if you’re a smaller business, stick to one for now.
What about general contractors? This is actually super simple, your specialty is project management. So focus on having really good project management and customer experience, not on doing 90 different trades well.
Always so helpful! Very responsive. Super professional. Great information and advice for growth!!!