When does one realize if their business is indeed successful? When does one realize if they are indeed a successful entrepreneur and have grasped the true meaning of entrepreneurship?
Over the past year we have brought you many articles on ADV1 / Jordan Swerdloff and have received quite a bit of feedback from just about everyone that has witnessed how quickly ADV1 grew. We showed you how Jordan’s failure led to his success and how the concave wheel was born as a result but how well is ADV1 really doing and is it sustainable? We take a deep look at the wheel industry and where ADV1 fits into its future but also get a feel for what it really takes to win in such a competitive environment…
For those that have not followed ADV1 or Secret’s coverage of ADV1, you have a lot to catch up on… Make sure to check out these important past articles:
For those that are lazy to read, watch this video interview of Jordan and his staff discussing their struggles early on in forming ADV1 and how they overcame that:
For all others, there is only one ADV1. The one company that has commanded the attention of the automotive world very early on with its introduction of the concave wheel. ADV1 is sharing its recipe for success with us while educating us quite a bit on the wheel industry itself. We asked Jordan to take our readers through the reality of the wheel industry and what it really takes to win and hold an advantage over the competition.
The wheel industry is very competitive, what has been the primary reason for ADV1’s success over others?
Because I simply DO NOT STOP, there’s is no break time, no being caught up, no downtime. Why? Because when I finish a project or development I move on to the next one, if there is no next one I make one up and move on with it. This is why ADV.1 is so overwhelming to the industry because you cannot catch up because by time someone finally copies our style I’m 3 more ahead of them when they started. How? Because I have the team, the knowledge and the drive to do so. Besides that, we’re passionate about this and we’re real, not just copies who are here for a buck, this is who we are and progressing the company with new products and designs isn’t work, it’s play to us.
From a business perspective, we’re extremely organized which allows us to keep up with demand and provide reliable lead times to our customers as well as the proper support necessary for our dealers to confidently sell the product. We demand that our vendors invoice us daily and pay cash, no terms, no debts, just a well organized accounting system that they can only wish others would utilize. Because of this we have priority, we have support, and we have their trust. Ask any vendor who works for us and they’ll confirm that there’s no better customer. We’re loyal to them and support them as long as they do the same to us, in turn we work as a team and when things get rough we’re happy to help and in turn so do they. Right now our competitors are having a hard time getting parts, finishing, aluminum, etc while we’re comfortable knowing that we can keep up with demand
From a marketing stand point, most competitors simply don’t know where to start when it comes to this stuff. This business is so heavily dependent on design and marketing that without the proper tools you’ll simply fall behind. It’s not about budget, you can throw all the money in the world at the biggest ad agency and go nowhere. It’s about passion and designing not what you think will be a hit because it’s like someone elses hit, but what you know will create a hit. This can’t be taught, can’t be bought, unfortunately without this tool forget about it, everything else is useless. At the same time though, without everything else mentioned above, this tool is useless…You need the whole package in order to succeed, bottom line.
How does one go from being the most hated man in the wheel industry to the most popular and promising CEO in the wheel industry? How does one re-invent photography to benefit its business and how does one take all that success and translate it into a sustainable business? – Keep reading to find out!
Since 2008, ADV1 has set to change the game for the wheel industry by bringing on the “Concave Wheel”, a wheel that has changed and redefined a new genre in automotive history. A genre that has been adapted by almost every wheel company in the world but innovation pays off and the rewards of such innovation include staying ahead of the game with a much more complex line of wheels available to your customers. We asked Jordan his thoughts…
The concave design is now slowly being adapted by almost EVERY wheel manufacturer, is that a danger to your revenue stream as the industry now offers multiple cheaper solutions than ADV1 for a concave?
Yes and no. They offer connive profiles however no one offers the range of versatility that we do, meaning that we don’t have to stick to a confined template as they do due to lack of engineering capability and funds to stock minimum orders of multiple different forgings. We’re also able to develop new forging dies, sizes, and profiles with no investment as the companies track record is enough for any supplier to waive or amortize these fees allowing us the freedom to design new products, not design based on the template that’s available to us. If we don’t have it we’ll make it, where others cannot. We don’t stick to a pre-determined profile, instead each order is individually engineered based on the vehicle, et, preference, which isn’t offered by any other company despite what they may say. Because of all this, yeah the average Joe does have options, but the real enthusiast with the real exotic who wants the best doesn’t look anywhere else regardless of other copies available.
We offer over 60 different types of wheels, no other company can offer a customer so many options and be able to provide them whatever they want regardless of their taste. The concave profile isn’t a monopoly, but even when it was we were still a new name so we couldn’t fully take advantage of it. Now that we’re trusted and proven, even though it’s not a monopoly anymore we still dominate it in the market that we cater to, which is the high end of high end. The other guys who shop for the best price and compare one to the other can have the other copies, we prefer it that way to be totally honest as it’s not our market and not what we know best.
Since concave wheels are in now, what will enable ADV1 to keep its edge?
I guess just the continued above mentioned factors along with the overall goal I have for the companies long term growth. I don’t think about now, I think about 5+ years from now. Everything from staff to reinvesting into the company is all for what the result will be in 5+ years from now. Ideas, designs and developments are the easiest aspect for me in fact I literally have to slow down with them in order to allow the customers to understand the product. All the new developments and offerings tend so confuse them so I release new stuff as slowly as I can, also to let competitors have a chance to catch up before releasing the next design they’ll race to copy first. I have something in the works that’s currently in testing that will redefine the wheel game once more but even if complete and ready to market right now, I’d hold off until the competition becomes more of a threat. I’m sure I’ve got new design / development to last until 2013 or later, but why let it all out now?
Besides all that, I know how hard this business is and I know what we’re capable of – because of that I know that competitors simply aren’t capable of producing this type of volume, which assures me that no one right now can keep up regardless of their products, design, claims. I know this because we’re contacted by some large names in the industry out of desperation as they can’t fill orders, partially because we’re overwhelming our suppliers which they may also use, and partially because the organization and drive to be able to keep production running smoothly is rare and most aren’t capable of maintaining control of vendors, staff and simply keeping the operation organized and on schedule. Private labeling to other brands isn’t our business however we’re approached with the offer more often than I would have ever expected which tells me the position and capability of competing companies.
Innovation is only a fraction of a business, other items like operations, accounting and manufacturing are another segment that a company must keep under control in order to expand to that next frontier. Lets talk about those and what expansion looks like in 5 years or so down the road?
The company has expanded 10 fold since late ’09 but not by choice, simply by necessity. I keep the company as minimal as possible, low overhead, minimal but efficient staff, and I’m careful not to expand unless it’s absolutely necessary and without carefully weighing the options and ensuring that the added costs will far be outweighed by the added productivity as a result. Inevitably as we continue to increase in sales, in turn other issues increase such as warranty issues, phone calls, emails, etc all adding to the workload for everyone. I watch this growth and constantly make sure that the added workload isn’t affecting anyone’s ability to get their work done within the day, if I see this it’s time to think about the resolution because I wont allow our service or quality to be compromised by lack of manpower. I believe that the costs of adding staff to handle a growing workload outweigh the costs of lost business as a result of inability to maintain control.
My strategy for expansion is only to be smart about it, weigh the pros and cons and always be careful not to increase fixed expenses in a way that could hurt the company in an event of decreased sales. My focus is to remain minimal and efficient, because of this we truly operate on an average of 35% gross profit / 25% net which is pretty good for a company so young and so small. The future I’m sure will lead to more staff, equipment and inventory but not without the necessity to do so and the safe financial ability to maintain cash flow and plenty of safety cushion.
You spoke of more equipment and inventory but yet ADV1 hasn’t opened its own manufacturing facility? Is the cost simply too high to do so without cutting your profit margin?
We basically control every aspect of manufacturing except the actual machine use, everything from scheduling, material inventory, staff shifts, parts, inventory, finishing, assembly and any other area of manufacturing is handled by ADV.1 staff. Machining is a business of it’s own and not what I know or pretend to know. I leave it to professionals who give me a well machined product with no experimenting. The rest we can handle but I prefer to pay more and maintain it this way as that end of the production isn’t something that I want to deal with at this point. We can likely save another 10% or more on our GP which equates to up to $50k on a good month right now, but I know from experience can also cost us more than that in warranty, failures, machinery expenses, etc. For now we’ll stay as is, until we’re forced to do this on our own – we have our own machines, staff, inventory, and literally every other aspect of the manufacturing end except the mill / lathe equipment and operators. We deal with them daily, include them in meetings and planning, basically everything but cut the checks.
Lets shift gears a bit and discuss more about profit margins, profitability and growth. There is a large number of people who are anxious to learn more about the financial elements of a wheel design company that has enjoyed an unparalleled amount of success. So is the wheel industry a profitable one?
It’s not necessarily a profitable industry actually. The reason we have been profitable is because we’ve created a product that doesn’t have to compete with the lower priced competitors by demanding a higher price and maintaining it’s price point. Because of that we’re profitable, but the majority of companies most likely operate on half the GP and more overhead resulting in minimal profits. These are the most expensive wheels that you can buy, the reason for that is quality, image, service and demand all of which are results of a ridiculous amount of effort which most simply aren’t willing to put into their companies. Just look at any other company and think about that, what do their wheels typically sell for by dealers, what do their companies look like from an image perspective, you’ll see for yourself that it may look profitable but isn’t always so. The majority of even larger companies run on terms, owe money to suppliers, and are in over their heads in advertising, this I know for a fact. Even though some may do higher gross sales than we do, their true profits are much less even if they don’t show it by not posting bills owed to vendors and / or converting estimates to invoices before finalizing (false income) if you were to review cash basis p&l’s and post all bills in AP so they’re deducting from profits on an accrual basis you’d immediately see what I mean. I don’t say this to be an asshole, I was there before and that’s why I’m not there now, I learned from that and got my books straight, I analyze the reports constantly and I fully understand what’s real profit and what’s not. Our books are impeccably maintained, reconciled daily and not a penny belonging to a vendor sits in our operating account, if a customer pays in full, the po is made, the bill is posted for all vendors / materials and the remaining gross profit is left while the rest sits in a payables account awaiting completion. No false income, no accounts payable, no negative receivables.
3 piece wheels and concave wheels are very expensive these days and the perception out there is that there is a significant profit to be made when selling wheels, but yet you are saying the exact opposite. So what kind of profit margins exist on a basic 3 piece wheel?
It all depends on the amount the brand demands. You can make no profit or you can make 100% or more profit margin, it all depends on that factor. We sell wholesale only, so our profit margins are less than if we were to sell directly to the retail customer however our sales volume far exceeds the profits seen from only selling to retail customers. Regardless we base our retail / wholesale prices accordingly in order to ensure that even at 40% discounted rates to larger wholesalers, we still maintain a minimum of 25% gp on any sale with some exceeding 100% gp depending on the product, cost and average discount rate given which can range from 20% to 40% depending on the dealer and product.
Despite the wheel industry not necessarily being profitable across the board, ADV1 as a company is. Many would kill to know how profitable. Can you share with us the type of revenue increases you are seeing now that you have pushed ADV1 light years ahead of everyone?
I don’t push for higher numbers, rather for efficiency within those numbers i.e., net profit, increased gross profit by decreased cost of goods, monitoring waste and maintaining budgets. I factor in all the little details that add up at the end of a quarter, like aluminum chip recycling, efficient forgings which cost more to develop but in turn have less wasted material and are more dedicated to what you’re specifically using them for, etc. We have watched our sales volume more than triple since this time last year, without increasing our fixed expenses more than 50% and can likely sustain an additional 50% increase in sales volume without increasing any overhead at all right now. At the same time, we can also sustain full staff and complete operation without any losses even if sales were to decrease as much as 50% from current average gross amounts. My goal isn’t to increase sales any more than they increase naturally, more to maintain control and efficiency – increased sales are a result of that and yearly gross sales in excess of $10 million are not at all unrealistic.
So the answer to the question everyone wants to know unfortunately in my case isn’t as exciting as you may want to hear. The company will likely be capable of producing over a million dollars in net profits in 2011 however ADV.1 is just a baby and it needs to grow much more, we take what’s necessary and use the majority of profits to continue the companies growth and foundation. We’ll shop for Veyron’s later : ) for now we’ll continue to focus on the long term goal.
A big Thank you to Jordan and his crew for sharing with us what really happens behind the scenes of a wheel company. It is admirable to see how far one can take a company based on previous experiences and failures. We will be featuring another segment on Jordan shortly as we dig deep in the mind of some of the most successful entrepreneurs in the nation…Stay tuned and make sure to check out more on ADV.1 at www.ADV1wheels.com