Bob Ketterer explains how this distribution company has survived more than 1,700% growth over the past seven years.

Going from $11 million in revenue in 2000 to $200 million today—a 1,700% increase—is something to celebrate. But it is also something to be concerned about if you don’t have the right processes, technology, and people in place to handle it. Fortunately, Home Design Alternatives, Inc., a distributor of do-it-yourself home design and improvement publications, has all three.

According to Bob Ketterer, co-founder and CEO of the St. Louis, Mo.-based company, HDA started 25 years ago selling house plans via a series of self-published books. Struggling to survive, it approached Lowe’s, which only had 300 stores at the time, with an interesting proposition. “If they agreed to carry our books, we’d create a materials list for every house plan using only Lowe’s SKUs. The lists would be in their computer system, so when someone bought a house plan from one of our books, it could be priced instantly. They loved the idea because it promised higher sales and took some of the burden off of their estimators,” said Ketterer. The first book was printed with a toll-free number, and phones started ringing immediately.

Bob Ketterer

Business went smoothly for a while, but when another publisher of home improvement books and magazines began offering category management services to HDA’s clientele—thereby threatening its shelf space—the company veered in another direction.

“We approached Lowe’s again and asked if they would allow us to provide category management services in a few of their stores because we thought we could do it better than our competition,” Ketterer explained. Lowe’s permitted the company to manage one rack of about 40 titles in 125 locations. Today, HDA controls just about 100% of the magazines and about 75% of books in all 1,375 Lowe’s locations in 49 states.

Finding a niche
All in all, HDA distributes more than 5,000 titles (books, magazines, and CDs) from hundreds of big-name publishers out of its two distribution centers totaling more than 200,000 square feet. The titles HDA self-publishes today constitute a small fraction of its total inventory.

Over the years, HDA provided category management services to home-improvement retailers of all sizes but slowly narrowed its scope to big-box stores in multiple retail channels, including craft and home decor. The CEO explained that while smaller retailers were using paper invoices and manual processes, large retailers were using technology to their advantage. They sent HDA purchase orders, payments, and notifications electronically, allowing the company to perform more efficiently.

“We found we weren’t handling the small accounts as well as we should, and we had already invested in infrastructure to handle bigger chains, so that is where our focus is today,” said Ketterer. He added that HDA still distributes products to a few smaller retailers but doesn’t provide them category management services.

According to Ketterer, HDA’s incredible growth is in part due to expanding big-box retailers realizing they can’t be experts at everything. With hundreds of publishers and thousands of titles to choose from, it is difficult to know what books and magazines will best meet customer needs. “It is generally not cost effective for them to do it themselves, so they rely on companies like us.”

Competition is so fierce that the company can spend more than two years landing a major account. But retailers continue to choose HDA for its quality service. “We don’t have an axe to grind like others in the publishing business,” said Ketterer, adding that many large publishers who provide category management find it difficult not to choose their own publications when they generate purchase orders for clients. Because HDA only publishes a small number of books, it takes a more objective stance. “We simply look at the numbers and choose the best titles. In fact, in the house-plan book category, we buy from our competition because, in certain markets, they outsell some of our titles.”

DIY IT
To keep up with the intense growth over the past few years, HDA has invested heavily in IT. The biggest challenge, Ketterer said, is capturing sales information from customers. When customers send point-of-sale information to HDA, the company generates a sales order that is fed to its distribution centers where the appropriate items are picked, packed, and shipped. The process gets complicated, especially for mega stores such as Michael’s Arts and Crafts, which carries up to 1,500 titles per store. To handle all of that information, the company has an incredible 12 terabytes of storage capacity.

Information regarding the quantity of products and where they should be placed in each store is sent electronically to each customer location so that when HDA field employees arrive at the scene, they know exactly what to do. “No two stores are alike, so we have to manage thousands of floor plans and display plans.”

Another major investment was the automation of HDA’s warehouse and distribution center. Currently, all items are bar-coded, and employees use scanners to move products throughout the facility. “When we place products into cartons, we know exactly how they fit best and what each box should weigh. Before we ship, we weigh each box, and if the numbers don’t match up, our quality control people take over,” said Ketterer. HDA’s accuracy rate is so high that many customers accept shipments on good faith. “They don’t need to check that what is printed on the packing slip is indeed in the box.”

In addition, last year, HDA began transitioning from accounting software Visual Account Mate to Great Plains, a process that is about 90% complete. “It was the right decision, but any time you change your core accounting package in the midst of growth, it’s going to hurt a little,” Ketterer noted.

As a $10 million company, life was a lot different for HDA. “I literally used to yell down the hall to find out what was happening. Now, with 1,200 associates, we need complex communications systems in place.” But no matter how automated the company becomes, Ketterer would like to maintain a family culture.

The CEO works hard to keep his employees happy: HDA hosts barbeques during the summer and happy hour on Fridays starting at 4:00. It has an exercise facility on site and is currently initiating a wellness program. But the most important lesson Ketterer has learned about job satisfaction and productivity is to sit back and trust people to do their jobs. “As long as I find the right people and get out of their way, business runs smoothly. It is when I fall back into the trap of wanting to do their jobs for them that I end up impeding our progress.”