Tough times, these. Some of you, I'm sure, would prefer to chase me with my own Harley if you could for some of the comments I've made about the market coming back by this time. I say this as an offer of apology and as an opening for this column, and next month's as well. I want to discuss the market, survival, and what to do when your market simply goes away. Too late, you say? Follow along and we'll see.
Not long ago, I met with a client in the upper Midwest. The fact that the doors are still open at this place is a testimony to strength, diligence, and determination, not to mention just good management and leadership.
In 2005, this particular business was somewhere north of $80 million in sales, with a community average of 24,000 housing starts that year. Not bad at all, right? Well, this would have been a time of plenty, as it were. In 2006, the business saw a slight decline to $50 million amid a 50% drop in new home starts. 2007 brought about a further decline in sales to around $30 million and only 4,000 new home starts.
It is now 2008, and the market's no better. But this client still has all of its stores open, it's still doing business, there are smiles on the faces of the employees, and managers and owners have a positive outlook. Why? Because this company has survived the worst and lived.
It did this by managing its receivables, inventory, employees, productivity, sales, margins–in short, by paying very close attention to those day-to-day critical profit variables that we all discuss every day. This company's leaders live, breathe, and die by the numbers. They collect data, measure everything that matters, manage the outcome, and control the output.
Are they happy about the state of affairs? I said they were good managers, not folks living in a fairy tale. But think of how well prepared they will be when the market comes back. If they can live through a 70% reduction in sales, when business comes back, they'll need to fire up the barbecue because it's gonna be party time.
Another client in the same market has gone through a similar situation: same housing-start decline, similar decline in sales. This client's response was a bit different. The owner managed his personnel more closely by cutting all of his "C" category employees. He and I and his managers conducted a thorough employee review just before the market went south. This particular dealer exec–like many of you–was reluctant to let poor-performing employees go if they simply showed up and tried to do a good job. But he was realistic enough to admit that in today's market, that simply wasn't good enough.
The slash-and-burn method wouldn't work here, but a thorough review and analysis did. Now this dealer is running a very lean operation with only category "A" and "B" players, all who perform at or near the top of their game. In addition to this, the exec implemented an aggressive commercial sales division to offset the loss of revenue from new construction. This has proven to be a good move, as it's a solid business that should be a long-term hit for the company.
Two dealers, same market, same conditions, different outcomes–but both strong survivors. I'm very proud of both of them. You can survive, too. This isn't the first time the market has faltered, and it probably won't be the last.
Just please don't touch my Harley.
Mike Butts is president of LBM Solutions, a DeWitt, Mich.–based LBM supply consulting and training firm.