The Characteristics and Experience of Business Networks Members

1. The Characteristics and Experience of Business Networks Members Ezra W. Zuckerman MIT Sloan School of Management Stoyan V. Sgourev Stanford University October, 2003

2. This presentation was prepared for the benefit of BN members and staff. The primary source of data for this presentation is the annual BN web survey, which was administered both in the spring of 2002 and the spring of 2003.The survey achieved remarkably high participation or response rates: 86% (158 of 183 eligible respondents) in 2002 and 89% (172 of 194 eligible respondents) in 2003. By comparison, surveys of organizations in the social scientific literature rarely achieve higher than 30% response rates. The willingness of BN members to give of their time and energy to make the survey as accurate as possible is a testimony to their goodwill towards BN and to the unflagging efforts of BN facilitators. Questions regarding the content of this presentation should be directed to Ezra Zuckerman of MIT, who can be reached at ewzucker@mit.edu or 617-253-1918.

3. Section I: Who are BN Members? • This section sheds light on two related questions: • How can we characterize BN members on key organizational and strategic dimensions? • How similar/different are BN members from firms in their industry? • We can only address the second question for remodeling firms (as opposed to restoration, cleaning, or kitchen-bath dealers) since we use data from the 2002 and 2003 NARI surveys (the first focused on NARI members; the second, on large remodeling firms generally) as our point of comparison. We lack comparable data on the restoration, cleaning, or kitchen-bath distribution industries.

4. Ia. Revenue/Size • Summary of results from Figure 1 (next slide): • BN remodelers were smaller (mean revenue: $ 1.5 million) than other BN members (mean revenue $ 4 million. • BN remodelers could be described as “upper-middle class” compared to their industry peers. • While BN remodelers were larger than the typical respondent in the remodeling industry survey (mean revenue: about $600,000)… • BN remodelers include relatively few of the very largest firms in the industry (4% of remodeling industry survey respondents had revenue over $5M vs. firms among respondents to the industry survey vs. only 1 BN member)

5. Figure 1

6. Ib. Age: Year of Establishment • Summary of results from Figure 2 (next slide): • The typical BN member-firm was founded in the late 1980s to 1990s . • There is less variation in age among BN remodelers than among non-remodelers (mostly restoration contractors): • BN remodelers are about half as likely as non-remodelers to have been founded before 1970 or in the 2000s. • Again, BN remodelers can be described as “upper-middle class” compared to their industry peers. • Whereas 53% of BN remodelers were founded between 1985-1994, this was true for only 40% of the remodeling industry survey respondents.

7. Figure 2

8. Ic. Perceived Income of Clientele • Summary of results from Figure 3 (next slide): • Unsurprisingly, the remodeling industry caters to a considerably wealthier clientele than do restoration contractors (as indicated by the responses by non-remodeler BN members). • BN remodelers appear to cater to a much wealthier clientele than is served by their industry. • Proportion of respondents with clients of over $100k average income (as perceived by respondent): • 47.9% (2003 remodeling industry survey) • 57.3% (2002 NARI member survey) • 86.4% (2003 BN remodelers)

9. Figure 3

10. Id. Plans and Managers • Summary of results from Figure 4 (next slide): • BN Remodelers are less likely to have on staff dedicated managers for the office, production, sales, and marketing. • This difference is largely accounted for by the relative size of the two types of firms (larger firms tend to have more systems). • BN remodelers are about twice as likely as their industry peers to have production and office managers (which cannot be completely explained by BN members’ larger size) • BN remodelers are also more likely to have a business plan and marketing plan.

11. Figure 4

12. Ie. Sales Strategy • Summary of results from Figure 5 (next slide): • Unsurprisingly, BN remodelers place less emphasis on price than on other selling-points than do non-remodelers (mostly restoration contractors). • While the avoidance of price-based competition is the general rule in the remodeling industry, this is even more true among BN remodelers than their industry peers. • BN remodelers are also more likely to rely on word-of-mouth and repeat business than their industry peers.

13. Figure 5

14. If. Perceived Level of Competition • Summary of results from Figure 6 (next slide): • Perhaps surprisingly, BN members tend to describe the competition they face as “low” or “moderate.” • This is particularly true for BN remodelers. • BN remodelers tend to describe their industry as being more competitive than do their industry peers. • There seem to be two possible explanations for this: • BN remodelers face tougher competition than do their industry peers. • BN remodelers are more pragmatic or cautious in assessing competitive threats than do their industry peers.

15. Figure 6

16. Ig. Perceived Profitability • Summary of results from Figures 7 & 8 (next slides): • The vast majority of BN members report that they were at least somewhat profitable in 2002. • BN remodelers are somewhat less likely to report being “highly” profitable. • BN33 members report the highest level of profitability; BN06 report the lowest. • BN remodelers report a lower level of profitability than do their industry peers. • Again, is this because BN members really are less profitable or because they are more careful in what they say and believe about their firms?

17. Figure 7

18. Figure 8

19. Ih. Perceived vs. Actual Profitability • Summary of results from Figure 9 (next slide): • BN members’ reports of their profitability are roughly in line with their actual profitability (as reported in BN numbers) • The greater their net profit, the more likely are they to say that they are highly profitable, and the less likely are they to say that they are barely or unprofitable.

20. Figure 9

21. Ih. Satisfaction with Performance • Summary of results from Figures 10 and 11 (next slides): • Roughly 40% of BN members said that they were unsatisfied with their firms’ 2002 performance. • There is relatively little variation across BN groups: BN02 and BN14 members are least satisfied; BN33 are the most. • BN remodelers are much more likely to be dissatisfied with their performance than are their industry peers. • Once again… are BN members really worse off– or more self-critical? than others?

22. Figure 10

23. Figure 11

24. Ii. Satisfaction and Profitability • Summary of results from Figure 12 (next slide): • Relative to their industry peers, BN remodelers seem to be much more sensitive to profitability when they assess the performance of their business: • Almost 60% said they were unsatisfied despite being at least somewhat profitable (according to their own assessment) vs. about 10% for their industry peers. • BN members (remodelers and others too) are almost never satisfied with being barely profitable and certainly with being unprofitable. Strikingly, their industry peers seem to be ok with being barely profitable and even unprofitable (at least in the industry survey)!!! • These results give us some confidence in saying that BN members are distinguished for being less satisfied with simply squeaking by and more ambitious in making their businesses more profitable.

25. Figure 12

26. Ij. Hopes for the Future • Summary of results from Figure 13 (next slide): • So what are these ambitions all about? • BN members emphasize profitability above all else, followed by growth, and efficiency. • Again, these priorities make BN remodelers distinctive from their industry peers, who: • Tend to stress growth (mentioned by 30% of industry survey respondents) over profitability (19%). • Tend to talk about retirement. • Are less likely to emphasize becoming more efficient.

27. Figure 13