Since 2008, the failure of just about every company and executive in the construction supply industry has been blamed on the housing market collapse. The big question now facing boards in an improving U.S. housing market is how much longer to accept this excuse for not winning. When do you instead start blaming inattentiveness to detail, poor work ethic, flawed business models, and lack of leadership? If a company is hemorrhaging red ink these days, it is because the management team can’t get the job done, the business model is a loser, or both.
Before the housing collapse, the building supply industry had little patience for negative results. Executive teams were given quarters instead of years to show improvement. Executives could buy time by spinning attractive story lines, but if results weren't quickly achieved, those executives were replaced.
Now is a good time for boards of the long-term red-inkers to proclaim the first rule in Southern business management: A little bit of showing beats a whole of telling. I have a real simple philosophy about how to win in the construction supply industry:
- Define winning. For independent dealers, winning is an acceptable bottom-line percentage. If you have to use some special financial acronym like “adjusted EBITDA” to explain results, you’re losing money. Redefining winning as something other than the bottom line means you are setting lowered expectations for your team.
- Face the music. If the company is seeing double-digit increases in sales but the bottom line gets worse or is not turning positive, either the executive team is inept or the business model is flawed. Something has to change.
- Know when you have lost. Sometimes a company has located in the wrong city, with the wrong business model and the wrong customer base. In that situation, the greatest executive team in the world, with every available resource, couldn't make the company a winner. It was a bad decision that should be put out of its misery.
- Use sound strategies. Don’t allow dreams of long-term strategies to cloud the judgment of today. There are executive teams who are using the old price-cutter strategy and have convinced gullible boards and investors that they will be the only one left standing. That is a bunch of hooey. This industry’s graveyard is littered with the tombstones of price-cutters who couldn't figure out that there will always be someone else who is just as willing to die in a vat of red ink.
- Profit matters. Market share and sales may be glamorous, but profits and return on investments are the goals. I’d rather be the CEO of a company with $50 million in sales and a $4 million profit than a company with $1 billion in sales and a $50 million loss.
- Finally, outwork your competition. I am amazed by the entitled attitude of some executives who believe their job is so pressure-packed that they must take a lot of time off. Ordinary people working hard to scratch out a living so they can put food on the table are under just as much pressure as any CEO.
My message is that the construction supply industry is in jeopardy because many executives and their companies don’t understand how to win. The companies that are content with losing money or who do not understand good business strategy are harming the market by selling goods at an unreasonably low price. Winning companies must outwork these competitors and explain fair pricing to builders every day. Winners make money. Losers lose money. Which one are you?
Don Magruder is CEO of Ro-Mac Lumber & Supply in Leesburg, Fla., and a former chairman of the Florida Building Material Association. Contact him at email@example.com or 352.787.4545.