January, 2009

LBM ENTREPRENEURS OF THE YEAR 2009

By Craig A. Shutt

Today, more than ever, success for construction supply firms requires fresh thinking and the determination to figure out a way to make sales happen.

There's a word for companies who are constantly driven to create new ways to better serve their existing customers-- and innovative methods of attracting new ones. Sometimes, this means focusing on being faster, better and more efficient with the fundamentals. Other times, it means thinking beyond the label of lumber/building ma-terial supplier, and launching entirely new products and services. The word: Entrepreneur.

Each year, LBM Journal recognizes three companies of different sizes who epitomize the entrepreneurial spirit in our hotly competitive industry with our annual Entrepreneur of the Year Awards. By our definition, entrepreneur isn't just someone who starts a new business. Instead, it describes companies that excel at identifying underserved—or emerging—markets, satisfying customers, and constantly working to grow and improve their business.

This year's winners, Ben's Do it Best Lumber, Haywood Builders Supply and Parr Lumber are dramatically different in most ways. The common thread tying them together is their fierce commitment to constant improvement.

We recognize these companies for two reasons: first, because they exemplify the entrepreneurial spirit that is alive and thriving in our industry; and second, in the hopes of igniting a spark at your company.

Parr Lumber has spent considerable time in the past few years reorganizing and adapting its systems and services to better meet its customers’ needs.

The company has its eye on gaining more business from builders not by selling them more lumber but by creating packages and providing marketing services that will make them more successful so that Parr can grow in tandem.

“In the past, the best thing to happen was that we sold a customer a big pile of lumber,” says Nate Bond, director of sales for the Hillsboro, Ore.-based company. “Now, we consider that the consolation prize. We’ve increased our value and services to our customers, so we’ve expanded the pie from which we can gain our share.”

The company was founded in 1930 and saw steady success, growing to 14 stores by 1996. But in the past dozen years, the company became more aggressive about growth, and it now operates 40 stores and six divisions: Parr Lumber, Parr Cabinet Outlet, Parr Marketing Group, Cascade Wholesale Hardware Inc., Northwest Structural Components (NSC), and NSC Installation (NSCi). Those divisions became so successful that coordination became unwieldy, leading to a rebranding in 2007.

“The divisions gained their own identities, and customers were confused about their relationship to each other and to Parr,” explains Jennifer Swick, director of marketing. The umbrella Parr Company was created to better communicate the range of solutions available.

Coordination Improves

“Prior to 1996, the individual store locations and divisions were nearly independent, which didn’t let us leverage our size overall,” Bond explains. At the behest of the company’s CEO, David Hamill, and four family members who are also members of the board—Michael Parr, Brad Farmer, Dwight Parr, Jr., and chairwoman Virginia Parr-Petros—Parr realigned into regions so sales people report to regional sales managers and products ship from the closest yard, not necessarily the one from which the order was made. “The integration and interdependence between sales and operations allow sales people to treat the entire company as if it was their own yard.”

This integration, he adds, “has been key to our success. It sounds simple, but it made a profound change.” The efficiencies helped lower expenses and keep the company cost competitive while increasing profits. “It lets us focus on the fundamentals of good material supply.”

Parr Marketing Group, Parr’s in-house advertising agency, was established in 2000 when the company decided to reclaim its retail sales, which were rapidly shifting to big-box stores. A National Association of Manufacturers survey showed that builders’ top three needs were capital, land, and sophisticated marketing services. “They weren’t as concerned with where they bought their building materials,” Bond reflects. “We knew we were in a position to help.”

Marketing was the obvious target among those three key needs. Under Swick’s direction, Parr began offering strategic marketing services to builder customers, providing customized indoor and outdoor signage, website design or content, and consumer checklists to help market specific features and benefits. “We provide whatever marketing tools they need to effectively communicate with their customers,” Swick says. “There’s no hidden agenda—if we help them sell more, we sell more.”

Plant-Based Housing Initiative

Aiding that was the creation in 2005 of a plant-based housing initiative, in which Parr produces the home’s entire shell to the point the builder requests. The walls and roof trusses are built and assembled in the plant. “This approach, in a controlled, computerized environment, increases the quality and reduces waste and cycle time, which are key benefits for builders,” Bond says. On site, the floors are constructed and related products—housewrap, windows, insulation, doors, millwork, even some roofing—are installed.

An evolution of the plant-based housing initiative was The Parr High Performance System, created in conjunction with Building Knowledge Inc. in Minneapolis, under the direction of Mark LaLiberte. “He stressed that the program should focus on simplifying the green-building concept for builders to make it easy to understand and build, and it lets them lay claim to a variety of strategic messages related to green building,” Bond explains. “This was a relatively easy step once we had the plantbased housing initiative and our construction company in place.”

Introduced in January 2008, the System consists of four key elements: sealing the home against air and moisture; retaining all HVAC ductwork in the conditioned air space via open-web floor trusses; using advanced framing techniques such as trusses, insulated headers, California corners, and studs 2-feet on-center; and testing the home to prove its efficiency after construction.

“Nobody else is offering these services, so it moves us into uncontested market space,” he says. “It also helps differentiate the homebuilder.” To date, due to the sluggish market, only a few builders have used the entire system, he adds. But a number use some ingredients, especially the HVAC design.

“Right now, framing labor is cheap, so it’s hard to convince builders to try new framing techniques,” he says. “But we are positioning ourselves to grow quickly as the market turns around. Framing labor will begin to disappear as demand grows, and homeowners will be even more discerning about high-performance products and homes.”

Parr targets contractors and consumers’ interest in green building with its “Get Real” program, introduced in November 2007. It identifies products in Parr’s stores that meet a variety of criteria for being environmentally friendly. “Get Real” products are labeled, and information is provided at a special Web site (getreal.parr.com) and in stores.

Internally Green

Prior to launching the program, Parr conducted an internal review to quantify its positive endeavors and impact others. The review strengthened the company’s sustainability, recycling, and efficiency efforts, Bond says. Today, Parr has converted 70% of its fleet to bio-diesel fuel and added energy- conserving T-5 lighting at 70% of its stores. It also  worked with Portland General Electric to convert 48% of its locations to a wind-power energy program.

The company extended this concept at its Northwest Portland facility, which underwent a complete remodel. Originally opened in 1946, the yard today showcases sustainable technology, including a 17.5-kw system supplying 40% of energy needs. The savings will pay for the system in 4 1/2 years. “We ask ourselves four simple questions when we consider a new opportunity,” Bond says. “Does it lower our customers’ risks? Does it make their jobs or lives easier? Does it increase their competitive advantage? Does it lower their overall cost and help make them more profitable? If we can answer ‘yes,’ we know we have a winner.”

Parr has been finding many ways to say yes, and they are positioning for rapid growth when the economy breaks loose. “We look to the challenges of our customers for our inspiration,” he says. “What we enjoy most is finding the solutions.”

BATTLING THE BOXES

Haywood Builders Supply’s ‘old country store’ service hides a high-tech operation.

Haywood Builders Supply in Waynesville, N.C., celebrated its 60th anniversary in 2008, and it gained a few scars along the way to securing its position in this mountainous, resort area. But its focus on service and its perspective of the company as just an “old country” store hide the fact that it maintains state-of-the-art computer systems, a low turnover rate, and steadily increasing sales and profits during the past 10 years. Certainly, the big box competition that has come and gone learned that lesson too late.

“Our store is a little splashy now, but it still has something of an old-time look,” says Danny Wingate, vice president and general manager of the company, which operates one building supply store and two design centers in the area. “Our sales people still wait on customers, write up the tickets, help pick the products and load up the order. And they’re pretty trustworthy about pricing things right. They own the place, so they won’t give it away.”

The company became employee owned in 2002 as part of an Employee Stock Ownership Plan (ESOP) begun in 1993. Each year, the company is appraised by an outside firm, and stock is issued to employees based on that valuation, with a report provided on how their retirement fund is growing. “It’s not as much of a motivator as some people expect, but it makes employees more than just hired hands,” he says. “They become owners, and we push that in a big way.”

The push has worked, judging by the low turnover rate. That, in turn, has been aided by the company never having laid off anyone, even during downturns. “We can’t provide the level of service we need if I lay off enough people to make a difference,” he argues. “Laying off a couple of people isn’t going to make a substantial difference. That isn’t going to save you, and it’s a disservice to customers.”

Recent Rapid Growth
That approach has paid off for the company, which grew from $3 million in 1988 to $7 million in 1992, and then saw revenues skyrocket to near $30 million in 2008. Part of that growth came from the opening of a Design Center in Sylva, N.C., in 2004, which generates sales in kitchen cabinetry and windows. It was followed in 2007 by another center in Asheville, N.C. “Our timing was bad for that one, but we expect it will pay off when the economy recovers. It’s a beautiful facility.”

The company also has held its own against big-box competition in the market. Though it continues to compete strongly against a Lowe’s outlet, Haywood’s focus on services for custom builders in this resort community keeps it the preferred choice for this high-end, higher-margin business. The competition also has pushed it to add new displays and services when it sees an opportunity. In 2006, it purchased a former Builders First Source facility in Waynesville, with an eye on expansion. In 2008, it opted to sell the property for a profit—and a 10- year non-compete clause.

“We’ve always run our company conservatively, because we know that good times can’t last forever,” he says. “Some people say that I’m afraid of debt, but we bought the company and grew from $3 million to $30 million with no outside capital, just with better inventory turns and working hard. We’re proud of what we’ve achieved.”

Estimating Leads to Sales
The hard work continues today in the toughest market in a long time. “We’re running and gunning on every permit in all of our areas,” he says. Each permit holder receives personal and phone contacts as well as direct-mail pieces. New projects also come to light through the company’s computerized estimating service, which creates a total estimate from footings to cabinetry.

The builder is supplied with the complete takeoff with blanks for labor and subcontractors, along with brochures for all products included. The estimates are free—and sometimes two estimates for the same home are received from different builders. “We find out quickly what projects are planned.”

Computerized estimating is but one part of the company’s overall technology strategy. Haywood has used a computerized POS system since the mid-1970s and has stayed up-to-date since. Today, it uses GPS and a large-screen monitor in its office to track its 14 trucks, and each order is bar-coded and scanned so it can be monitored from picking to staging to shipping to delivery.

Salespeople use Blackberry hand-held devices to communicate, including electronic pens so hand-drawn designs or diagrams can be written in the field and transmitted to the store. “For a country store, we’re pretty high tech,” Wingate says.

Haywood also has taken a leadership position on green building practices, insisting on green certification for products as soon as it was available. It is a member of LBM Journal’s Certified Green Dealer TM program and labels its sustainable-design products with “Green Tree” symbols. Its website includes information on all types of green products and how they are sustainable or recyclable. The company uses CFLs in its lighting fixtures, recycles its own waste materials, and recycles rechargeable- tool batteries and cell phones.

“We do as much as we can to sell green products and be aware of what’s out there, but it can be tough to introduce new products in a down market,” he says. “We stay on the cutting edge of product trends, and we talk with architects about products they’re interested in and encourage them to try new products when the opportunities arise.”

With 2009 looking even more difficult than 2008, Wingate and his team are focused on cutting costs, gaining efficiencies, and ensuring they are ready for the turnaround. “We’re reading everything and taking every Webinar we can right now,” he says. “Customers’ forecasts are not strong through the spring, but we’re hoping the stimulus package and new administration will help boost the market.”

Wingate remains optimistic but realistic, he adds. “We may have to tighten our belts for the near future, but we’re committed to retaining the skilled people we’ve invested in. We intend to grab every permit and project out there right now and hold on until things turn. Our area has typically been late into a downturn and quick to come out, and we are hoping that holds true. The housing bubble has burst, but we knew it would, we were prepared for it, and we know it will come back.”

DOING ‘WHAT WALMART WON’T’

Ben’s Do it Best Lumber expands into new niches that bring in new customers.

Ben’s Do it Best Hardware & Lumber in rural Brown City, Mich., has a simple goal: It wants “to be everything to everybody,” says president Jim Zyrowski Sr. Accomplishing that has expanded the store’s business significantly and taken it in dramatically new directions over the past decade in particular.

Today, the building-material dealer not only ships materials throughout the state but also operates, within its one building, a grocery store, Subway restaurant franchise, rental center, embroidery service, its own Buffalo Wings & Pizza Co. take-out restaurant, and a full-service supermarket with a bakery, delicatessen, and butcher shop. Meats in the butcher shop include a full range of bison cuts, culled from the company’s herd.

“My motto is WWWD: What Walmart Won’t Do,” Zyrowski explains. The nearby Walmart Supercenter store, for instance, offers meat but doesn’t have an onstaff meat cutter. “We went completely in the opposite direction by owning our own herd.” The store offers brochures about the benefits of bison meat, complete with a map to the farm so customers can see the herd grazing.

The business started in 1965 as a 2,000-square-foot grocery store operated by Zyrowski’s father, Ben. In 1980, it moved to a new 12,000-square-foot store in the same shopping center as a 5,000- square-foot Ace Hardware store. In 1984, the hardware owner wanted to sell, so the Zyrowskis added the store to their operation. It was expanded into a 13,000- square-foot operation offering a “convenience” selection of lumber in addition to hardware items, Zyrowski explains. “And we just blossomed from there.”

That blossoming took root in 1997, when Ben’s added 15,000 square feet of space to pull together all of the retail services under one roof, he explains, creating a 72,000-square-foot store. They also constructed a 27,000-square-foot outside lumber area, with all materials under roof and accessible via drive-through lumber bays. The company offers a complete design and estimating department to aid contractors.

When the expansion began, Ben’s operated as a retail lumberyard, without a contractor base, he notes. “We were the new kids on the block in terms of building-material sales.” To change that, sales people began to call on contractors and
developed an outside-sales support system. The final additions to the store came in 2004, when it leased space to a local bank and pharmacy.

Multiple Facets Create Resiliency
“We want to do everything that our competitors don’t or won’t do, which makes us much more multifaceted,” he explains. “Logistically for management, it can be a nightmare, but it makes us more resilient in tough times and gives us more appeal to a wider range of customers. They can come to us to service a lot of their various needs at once.”

Contractors today make up the majority of the company’s building-material volume, but the do-it-yourselfer is still welcome. “We still cater to the DIYer because those customers come in for other services. In tough economic times, the diversity helps. We love all of our customers, no matter what they’re buying. And we’ve done far better than most of our competitors in this downturn—some of the yards that catered only to contractors have closed shop.”

Indeed, the diversified approach has paid off, with the building material business far outstripping the original grocery business in sales today. “In the early days, grocery was the largest part of our business, but in a small community like this, you can only sell so much grocery volume. We looked to the lumber and building material category to expand our sales, and that now dwarfs the grocery sales.”

The company offers a wider array of products than most building material stores, ranging from typical departments such as plumbing, electrical, hardware, and doors and windows to holiday, office supplies, pet supplies, and work clothing. The one offering the most opportunity right now, he notes, is Farm & Ranch, which includes everything from rings for bulls’ noses to coverall buildings and animal trailers. “Our agricultural business has expanded significantly,” he says. In December, the company held in-house training classes for a new product line, grain-storage bins for farms.

Ben’s also has embraced technology, which began when it joined Do it Best Corp. in 2004 after switching from Ace to better handle its 180,000 SKUs, encompassing both groceries and building materials. “Because of our grocery products, and the fact that customers can buy any product in the store with one checkout, we need a system that can handle cumbersome ringups, like set weights, food stamps, and state food requirements,” he explains.

Online Sales to Grow
For 2009, Zyrowski has his eye on expanding the company’s online sales, which it began to dabble with in 2007. The store has revamped its website to focus attention on online ordering, and it offers its range of products. “It’s now to the point where we have a vision for what we want to do and have a focus for that business,” he says. “Our e-commerce site is the biggest opportunity we have for expansion.” The store also operates an online eBay shop, selling a variety of products offered instore as well.

At the same time, Ben’s is using technology to cut its operating costs, switching much of its advertising budget to online local publications and sites, such as those operated by the Michigan Farm Bureau and Michigan Farm Trader. The sites offer small ads virtually for free, he says, and the company uses that space to feature a pole building or grain-storage facility and link to its three-page brochure showcasing all of its agricultural products. Approximately 250,000 people see the ads each month, he says. “It’s really a creative way to do advertising, and it’s cut our costs dramatically.”

The company is gearing up for more emphasis on the agricultural market, he says. “That’s where the sales are right now.” It has created a standalone Agricultural Division, which will focus on larger products, including outdoor boilers, indoor corn and pellet stoves, trailers, and storage silos.

“As the economy shifts and needs change in our area, we adapt with different products,” he explains. “We’re constantly expanding and looking at new products that will create customer excitement and sales opportunities. What we add depends on what our customers tell us they want. We’re a customer-driven company, and we listen to what they tell us. As a result, we continue to evolve and reinvent ourselves.”

CRAIG A. SHUTT, a senior contributing editor of LBM Journal, has nearly 30 years of experience covering the LBM industry.