This commentary was taken from the Aug. 6 newsletter of the Florida Building Material Association. Brad Wanzenberg is this year's chairman of the FBMA. He is executive vice president of Deerfield Builders Supply, Deerfield Beach, Fla.
I've been thinking about the future a lot recently. Not only because the past is forever gone, but also because the future is where optimism is born. In particular, I've been contemplating the qualities shared by those LBM dealers that will best be positioned to thrive in the coming recovery. Not coincidentally, these attributes are what have marked their successful battle through this tough business cycle. While my focus is on building material retailers, one could make the argument that these qualities would mark the success of firms and organizations across a wide variety of industries.
Capital, and its Prudent Management
If we ever needed a reminder that the construction industry cannot survive without functional capital flows, the last two years have sunk that point home. Sure, every once in a while we come across an owner or developer who has the deep pockets to pay cash for a projectm but even in those cases credit must be extended through the supply chain for at least short periods of time. It follows that adequate capitalization is the prerequisite for an LBM dealer to have a seat at the table. This capital typically is used to finance inventory and accounts receivable and to fund investment activities. And just having access to capital is not nearly enough. It must be managed prudently and with the long-term interest of the firm in mind.
A particularly unique component of this business downturn has been the contraction in credit throughout the entire economy. This "de-leveraging" process has challenged even the most prudent working capital manager. It is a rare LBM dealer who has not felt the effects of the contraction of available capital on one level or another. Rarer still would be the dealer whose customers have not been affected by the credit crunch. Credit underwriting standards have tightened exponentially and the search for creditworthy builders and contractors has been very challenging.
LBM dealers who have remained steadfast in their conservative application of credit standards and who have deftly managed their inventories stand ahead of the pack in the current environment. Prudent management of working capital is important in all business cycles, but life-sustaining in this one.
Management Talent and Experience
The challenges presented by the current economic climate have been unprecedented in scope and magnitude. This topic alone could be the theme of this message and for those for weeks to come. Suffice it to say that only with a deep bench of management talent could these challenges be met and bested. Plunging customer demand, surging fuel prices, hyper-competitive market environment, contraction in available credit throughout the industry, healthcare cost increases, rising property taxes, lumber price deflation. ... I could go on and on. The rubber meets the road each day with the formulation and execution of strategies aligned with each firm's unique blend of strengths and not-so-strengths.
The management team of the thriving LBM dealer is agile and definitive in its application of strategy across the spectrum of the challenges they face. Without becoming too esoteric, I"ll put it more simply: the management team that adopts and successfully executes the "git 'r' done" strategy wins.
Quite often, it is a management team that exhibits both a wide range (breadth) AND depth of ability. Breadth in that the team can handle a variety of challenges at once and depth in that it can recognize the root cause of the challenge to either handle it definitively at once or manage and mitigate it over time. The management team that can handle a broad array of challenges completely and decisively will always be competitively advantaged.
Focus on the Customer
I submit that "customer service" may be the most overused term in business. Most, if not all, businesses talk the talk but fall well short when it's time to walk the walk. I don't mean adopting the "customer is always right" attitude. Frankly, that's for kindergarten class; anyone can slap that slogan on the front door. I'm talking about truly transformational customer service. Creating a corporate culture where each employee has the passion to earn and maintain each customer's business with every transaction. Each company and each market will have its own set of conditions that dictate what world-class service means.
The common theme is anticipating the problems your customer faces and focusing your energy on solving them BEFORE they become a dislocating challenge. And in the event that the problem has knocked on your customer's door, to adopt an attitude of partnership and collaboration in finding resolution, especially if your firm or employees have caused the problem or contributed to its magnitude.
When I think about a culture of customer service, my mind often wanders to what Ritz-Carlton calls the Employee Empowerment Process. In short, each employee is trained and empowered in the art of total customer satisfaction. I know we aren't running hotels in this industry, but I'm a big fan of learning best practices from whoever practices them, regardless of the industry. Customer service must get into the DNA of your employees. Again, this is not merely the credo of ownership or management. For a dealer to truly exhibit world-class customer service, it must instill these beliefs among all employees, from the newest hire for the most elementary function to the very top.
Become the Expert
In Florida, where the technical and administrative burdens of building construction are among the toughest in the world, it takes experts to get the job done right. Architects, engineers and, yes, lawyers are key players in the construction arena, no doubt about it. But so are LBM dealers. We are literally and figuratively the last mile to the jobsite.
For all the talk of pull-through business among the manufacturer and wholesale community, and in some cases where traditional upstream players are beginning to call directly upon contractors and builders, our value in the supply chain is unquestioned. Successful companies are those that focus on the qualities that set them apart from the upstream players in the channel. They make it difficult or impossible for their competition and customers to marginalize them.
A strong emphasis on showroom displays, finding creative credit and financing terms (yes, you CAN safely use that to your advantage!), efficient delivery and after market service and warranty support will secure the successful dealer's place in the mind of the customer. Companies with sharp focus on this goal are the ones who frequently hold product knowledge updates for their employees and customers.
Many professionals in our industry hold licenses and designations that require continuing education hours over periods of time. The eminent LBM dealers of our industry seek out and create their own continuing education programs, whether it is an administrative requirement or not. Nothing is as rewarding as having a customer call and say "I know you don't carry XYZ product but can you find it for me? I don't know who else to call." Be that dealer, be that resource. Those who consider expertise a competitive edge, and who in quantifiable ways seek to broaden that expertise will always have value in the marketplace. And, inevitably, success will follow.
Master the Intangibles
LBM dealers, particularly those of the independent persuasion, have always adapted to local conditions in their search for success. The beneficiaries of the coming recovery will be no different. Whether it be a unique market opportunity or a business or product specialty arising from a particular employee's interest or skill set, these initiatives can be a force multiplier for an already innovative and successful dealer.
By exploiting the opportunities that sprout from the unique conditions of their local environment, a dealer can cement its footprint on the market and ensure its success, assuming it exhibits at least a subset of other attributes of success. Perhaps there is a unique geographic or demographic demand for a product or service, or a building code-driven need for an installation program,. The successful LBM dealer will search for, find and exploit the need arising from the unique environment in which the dealer operates. And once again, in my judgment this is as much cultural as it is pragmatic and born of self-interest. A company whose culture extends broadly throughout the organization and encourages and rewards innovative and creative ideas from within will most certainly be well situated in the competitive marketplace.
There is great value in studying the habits and attributes of successful companies. In my professional career, I have always sought opportunities to visit businesses for which I have great respect and admiration. Many of these opportunities have been through and as a result of my association with FBMA. As always, I urge and challenge you to find creative ways to ensure the survival of your business. Not all things work for all people, but the exchange of ideas and best practices is a proven technique in the search for growth and success.