October, 2007

Buy Low, Sell High

Turbulent times offer an opportunity to dig deep—and capture market share and new customers.

By Bill Lee

I heard once that when taxi drivers begin giving you stock tips, it’s time to convert your portfolio to cash. That’s because the stock market is almost certainly poised for a major correction.

The same may be true for housing, especially in some of the nation’s most inflated markets. While I was on a trip to Florida a few months ago, a taxi driver began to boast to me about how much money he was making “flipping” houses. I knew that this wasn’t a good sign.

As I talk to owners and managers around the country, there are only a few bright spots. Most dealers tell me that their sales are off, but the percentage that sales are behind last year varies from a typical case scenario of 20% to 30% to more than 50% in a few of the nation’s worst-hit regions.

Just a week or so ago, a salesman friend told me that he was managing turnkey jobs for a customer in a market two hours away from his home base just to keep some semblance of sales (and commission income) flowing. He told me that his income was off by around 50% compared to this time last year. His traditional customer base—builders who built multi-million-dollar spec homes—had suspended all construction and were struggling to pay their monthly debt service.

The lumber market is deflated and housing starts are depressed. What could anyone find to say that’s positive about a market such as most lumber dealers find themselves in right now?

A highly respected lumberman shared this piece of wisdom with me back in 1989 when housing was slumping: “These kinds of times are necessary to get rid of some of the dead wood in our industry. Owners and managers who’ve made their living with low-ball prices have made so little profit during the good times that they haven’t accumulated enough equity to survive the lean times. Getting those kinds of competitors out of the market will make it easier for the rest of us when housing gets back on its feet, and it will come back…it always does.”

It may not be wise to sell a business at the bottom of the market, but it sure might be a good time to buy one. Could this be the right time to expand your business through acquisition? There may be some motivated sellers out there right now who could play nicely into the hands of expansion-minded dealers.

One of my clients paid a rock-bottom price for a lumberyard at the bottom of the market several years ago. He expanded the yard’s sales, beefed up its product lines, and sold the business just six years later for a $10 million profit.

This strategy may not be right for you, but our industry will rebound, so at least discuss this option at your next strategic planning session.

Sales Management

In normal times, most owners and managers do a lousy job of managing sales. But these are not normal times. Someone on your management team must make sales management a top priority. Salespeople in our industry have had it so good for such a long time that many of them have forgotten how to dig for both new customers and new markets for the products they sell.

Opportunities in the repair and remodeling segment of our industry, as well as in the commercial and industrial sector, are significant, but many sales organizations have ignored these markets for so long that this business has drifted to the box stores.

I’m telling my clients to get serious about sales management by sitting down with each salesperson and hammering out a plan to replace the business that has been lost.