My last article [for the Florida Building Material Association newsletter] received a lot of responses from independent dealers across the country. The most interesting response came from Al Bavry, president of Kimal Lumber in Nokomis, Fla. Al has been a leader in the industry for 50 years, and Kimal Lumber is regarded as having one of the best operations in the country.
Al told me the story of Modern Builders Supply (MBS), a Fuller Brush Company, which in 1960 was located in Sarasota. At the time, Fuller Brush was a huge conglomerate based in Boston and MBS was a company that originally focused on the concrete and rebar business because Peter Fuller owned a rock quarry in Immokalee. According to Al, the bean counters in Boston decided to become the total supplier for builders and planned on eventually becoming the dominant provider to builders in America.
Their playbook was to sell the complete line from rebar to roofing, going low-ball to win all the business, and muscle out all other competitors. On a particular hospital project that MBS initially lost the bid on, management was told to go back and drop the price 10%, and continue dropping the price by 5% until the job was theirs. The process of low-balling and trying to muscle out the competition continued until some nasty bean counter came down from Boston wanting to know why they were losing all of this money. As these things go, people were fired, dreams were dashed, people looked stupid, and the competition remained after MBS closed and eventually turned into a church site. In essence, Modern Building Supply had committed suicide by using a playbook that was flawed. After telling me the story, Al said, "These corporations today are using an old playbook that has never worked."
Al Bavry is correct. Many corporations are using the same old, failed playbook from 50 years ago, and this story is being retold daily by many companies in the industry today. The names have changed, but their actions are just as predictable even with new technology. Let's look at the key elements in the old playbook and see if you're still using it:
- Low-balling prices to get business in hopes of magically locking in customers for a lifetime and knocking out well-run competition.
- Selling everything and doing everything because you found that lumber salespeople can be trained to sell cabinets, installed windows, and commercial steel. Expertise can be trained.
- Hiring ourselves to success. Find the best retreads in the market and pay them unrealistic salaries. When the salesperson doesn't meet expectations, he can go to the next highest bidder.
- Making sure your management team is full of "yes" people who've never really achieved success but will pop to attention. Getting along and towing the line is more important than achieving success. In other words, corporate clones.
- "I'm such a big company that I can afford to take the loss to knock my competition out of business."
- "Oops! As my company is closing its doors or filing bankruptcy, it wasn't my fault. We had a great strategy, just bad timing."
This is the old playbook that Modern Building Supply used 50 years ago, and it's the same playbook that's been used by just about every building supply dealer that has wound up on the ash heap of failure. Would someone please burn this damn playbook so executives in our industry will understand it doesn't work? If you're considering investing in the building material industry, look at its history of failures so we can stop repeating the same mistakes.
To start the process for writing a new industry playbook, I'm going to propose some base items that should be in everyone's scheme. Then you can fill in the blanks of items important to your company.
The new industry playbook should have these elements:
- Executives and management should be signed to long-term contracts with a focus on total balance sheet performance and not just sales or quarterly profits. There are too many people looking for quick golden parachutes and too much focus on one quarter's performance. Incentives should be based on total balance sheet performance.
- Instead of competitors driving business operations and goals, companies should establish their own operational benchmarks in margins and expense control and then have a properly focused team to ensure they're being followed. There needs to be someone in your company that has the will and authority to ensure the company's operational matrixes are being adhered to. Basically, if a company knows its plan is correct, then don't change it every time a competitor's knee jerks.
- Instead of low-balling, strive for the Wal-Mart principle of value: adding services and cost controls through innovation and technology. Win customers and increase margins by doing it better than anyone else.
- In every market, there is a sales prostitute who has worked for every dealer. I'm told that if you comport with prostitutes, you can get things you don't want. Truly successful companies in America home grow their talent because they're loyal and will follow the company direction.
- Stand for something -anything. If you don't know who you are and what you do, and your message in the marketplace is driven by your competition, then you have a problem. If your customers think of you as a low-baller, then how in the world will you ever win them on anything else? Low prices may get you sales, but they don't purchase loyalty. Most women will tell you that Wal-Mart doesn't have the lowest price on everything, but they're drawn by their marketing.
- If a company has established its matrixes, management team, marketing strategy, and has the personnel to be successful, and for whatever reason it is not happening, look for real answers. Flailing around low prices and stupid terms will result in a quick suicide. In the early 1980s, my competition, City Lumber in Pascagoula, Miss., was the main supplier. None of the low prices I offered could crack their builders. Sometimes your competition is very strong and it's going to take time to win business the right way.
It's time for a new playbook in our industry. Realistically, I'm not optimistic that many will change. The old playbook is an easy read and it doesn't take much skill or hard work to follow it. As long as we have companies and management teams looking for the easiest path, the old playbook will be used. As an independent dealer, I fear the day when a national supplier enters the market and wants to do battle in the areas of quality and service, because they've matched superior technology with well-trained, disciplined people.
Don Magruder is vice president and general manager of Ro-Mac Lumber & Supply in Central Florida and former chairman of the Florida Building Material Association. This article originally appeared in FBMA's April 29 newsletter.