The Characteristics and Experience of Business Networks

MembersEzra W. Zuckerman

MIT Sloan School of Management

Stoyan V. SgourevStanford University

October, 2003

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.

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.

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)

Figure 1

Company Revenue in 2002

0

5

10

15

20

25

30

35

40

under

$50,0

00

$50-$

100k

$100-

$250

k

$250-

$400

k

$400-

$700

k

$700k

-$1m

$1-2m

$2-3m

$3-5m

$5-7.5

m

$7.5-1

0m

$10-1

5m

$15-2

0m

Over $

20m

Per

cent

age

Remodeling Industry

BN Remodelers

BN Other

I

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.

Figure 2

What year was your company established?

0%

5%

10%

15%

20%

25%

30%

Before 1970 1970s 1980-1984 1985-1989 1990-1994 1995-1989 2000s

Remodeling Industry

BN Remodelers

BN Other

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)

Figure 3

Please, estimate the average household income of your clients in 2002?

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60

$50,000

or belo

w

$50,000

to $1

00,00

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$100,0

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$150,0

00 to $25

0,000

$250,0

00 to $50

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00 to $1,0

00,000

$1m to

$2m

$2m or a

bove

Per

cent

age

Remodeling Industry

BN Remodelers

BN Other

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.

Figure 4

Does your company currently have a ..?

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80

90

marketingplan

businessplan

off icemanager

productionmanager

salesmanager

marketingmanager

Percentage

BN Other

BN Remodelers

Industry

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.

Figure 5

When talking to potential clients, how much emphasis do you put on your company's lower prices?

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10

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90

100

BN Others BN Remodelers Remodeling Industry

Per

cent

age

Strong

Moderate

Little

None

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:

A. BN remodelers face tougher competition than do their industry peers.

B. BN remodelers are more pragmatic or cautious in assessing competitive threats than do their industry peers.

Figure 6

How intense was the competition between your company and others in 2002?

16.13 12.5 12.53

31.1830.56

15.93

41.9434.72

39.43

10.7519.44

26.63

2.78 5.480.0

BN Other BN Remodelers Remodeling Industry

Per

cent

age

No competition

Low

Moderate

Intense

Very intense

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?

Figure 7

How would you describe your company's level of performance in 2002. Would you say your company was...?

20.43 13.51 17.75

60.2264.86

75.2

15.05 17.576.01

BN Other BN Remodelers Remodeling Industry

Near bankruptcy

Not profitable

Barely profitable

Somewhat profitable

Highly profitable

Figure 8

How would you describe your company's level of performance in 2002. Would you say your company was...?

4.34.0 4.1

3.8

4.3

3.74.1

3.83.5

4.0 4.23.9

3.7

4.7

4.04.14.1

3.63.4

0

1

2

3

4

5

2 5 6 7 9 10 11 12 14 15 16 17 19 20 21 22 24 31 33

Average response

5-Highly P rofitable4- Somewhat P rofitable3-Barely P rofitable 2-Not P rofitable1-Near Bankruptcy

BN Group

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.

Figure 9

Objective by Subjective Profitability

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BN Remodelers BN Other

Per

cen

tage Highly

Somewhat

Barely/Un

Net Profit in 2002

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?

Figure 10

How satisfied are you with your company's peformance in 2002?

10.75 6.85

30.75

46.2445.21

59.95

37.6334.25

8.535.3813.7

BN Other BN Remodelers Industry

Very Unsatisfied

Unsatisfied

Satisfied

Very Satisfied

Figure 11

How satisfied are you with your performance in 2002?

2.0

3.0

2.4

2.0

2.5

3.3

2.62.82.5

2.72.9

2.5

2.3

2.6

2.42.62.4

2.6

2.5

0

1

2

3

4

2 5 6 7 9 10 11 12 14 15 16 17 19 20 21 22 24 31 33

Average response

4 -Very Satisfied3 - Satisfied 2 - Unsatisfied1 - Very Unsatisfied

BN Group

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.

Figure 12Does Profitability Drive Satisfaction?

39.8%

85.2%

71.4%

8.3%

34.8%

45.8%

100.0%

34.8%12.6%

6.6%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Very Profitable SomewhatProfitable

BarelyProfitable

Unprofitable

Proportion who said they were

"unsatisfied" or "very unsatisfied"

BN Remodelers (2003) Remodeling Industry (2003) NARI Survey (2002)

Respondents who said they were...

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.

Figure 13

Consider where you want your company to be in 5 years. What is themain difference between now and what it will look in 5 years?

0%

20%

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100%

120%

140%

160%

180%

200%

2 5 6 7 9 10 11 12 14 15 16 17 19 20 21 22 24 31 33

Retire

Greater Efficiency

Better Organization

Employee Training

More Employees

Change in Owner's Role

Profits

Growth

BN Group