June, 2008

Offense or Defense?

What's your game plan for 2008?

By Bill Lee

All during 2007, I caught myself boasting a bit about how well the housing economy had held up in my local South Carolina community. However, in this morning’s newspaper, I read that in the first quarter of 2008, our local housing starts were down 44.3%.

If you are doing business in a market that is struggling, the way I see it, you have two choices: Go on the offensive or resort to a defensive game plan.

For those positive-thinking managers and salespeople who decide to become more aggressive and take the offensive, you have several options:

– Sell more to your current customers
who are still building.

– Take some business away from the
competition.

– Expand your service area.

– Expand your product and/or service
offerings.

– Control operating expenses until one
or more of your growth strategies
bear fruit.

And for those who wish to take a more conservative approach, you really have only one choice:

– Reduce operating expenses until they are in line with the gross margin dollars you are able to generate. Regardless of what your sales currently are, I’ll bet you can remember when you made a satisfactory profit at the same level of sales as your company is generating right now.

I have one client in particular whom I greatly admire. He and his management team did not drag their feet when they saw the handwriting on the wall; they wasted no time in getting operating expenses down to the point that they are making a profit in spite of sales being off by well over 50%.

So I guess these offensive and defensive strategies could both be implemented, but if an offensive game plan doesn’t work and work pretty quickly, then you’d better become extremely aggressive at whacking away at operating expenses, beginning with your largest expense category—people related expenses.

Some of my clients are reducing hours rather than having to lay off personnel. Others are asking their more highly paid managers to take a temporary cut in pay until the market turns around. I believe both of these tactics should be seriously considered.

I recall that back in 1975—the year of the worst housing recession I have ever experienced personally —my company
held meetings with all departments and allowed our people to participate in the decision-making process. Almost to a person, our people encouraged us to reduce hours rather than lay off a significant number of personnel.

Another offensive weapon all owners and managers have at their disposal is implementing a gross margin improvement plan. I have just finished narrating a 4-plus-hour Gross Margin Home Study Course that is made up of 129 Power Point slides on a CD. In this course, I’ve done my best to design a training product that will make it easy for your people to understand what they can and must do to improve gross margin. (To order, click on Products at www.BillLeeOnLine.com.)

Just last week, I visited a client in a market that has been hard hit. But as the owner was showing me around his yard, the first place he took me was to see the new Design Center he had built. “We’re taking this opportunity to do something
we’ve been procrastinating on for years,” he told me. “Now that business is slow, we have decided to come out of this [housing recession] better prepared to take advantage of the recovery.”

Whatever you do, do something! Be proactive! Take charge of both your destiny and that of your company. There’s still business out there for innovative and aggressive lumberyards to solicit.

This isn’t the first housing recession for most of us and it certainly won’t be the last.

My vote is to make the best of whatever kind of market you find yourself in and get prepared to take advantantage of whatever it is that comes along next.

BILL LEE has nearly 40 years of experience in the construction supply industry. A consultant and seminar leader, he is the author of two books: Gross Margin and 30 Ways Managers Shoot Themselves in the Foot. www.BillLeeOnLine.com, 800.277.7888