April, 2009

Strategic Thinking in a Housing Depression

By Bill Lee

If there has ever been a time to rethink your business—strategically—2009 is the year. In our wildest dreams, few of us foresaw a housing depression of the magnitude we saw in 2008 and are continuing to see in many regions in 2009.

While a handful of executives in our industry have actually sat down and rethought their businesses, they are in a minority. Too many owners and managers are merely fighting to stay afloat and are not spending very much time thinking about their businesses strategically over the next few years.

Let’s face it! A lot has changed in your market over the past two to two-and-ahalf years. Some of your best customers have stopped building. Demand for building materials has diminished drastically. Other builders have filed for protection under the nation’s bankruptcy laws. Still others no longer qualify for credit. Key personnel have been laid off. And if you’ve lost a significant amount of money over the last couple of years, your company’s own capital position has taken a beating.

I believe it would be wise to take a few days away from your business and in the quietness of a meeting room hammer out a strategic plan that will help your managers make better decisions in 2009 and beyond.

Regardless of what your sales were in 2006, the odds are excellent that they were substantially lower in 2008. While this is not true of all construction supply businesses, it is true of the majority of them. So the odds are that your company is at a new beginning; where are you going to go from here?

From a strategic point of view, the more capital you preserve, the stronger your company will be when we hit bottom and begin to come out of the current downward cycle. So you have little choice but to stop the bleeding by hammering out an operating budget that in a worst case scenario breaks your company even and in a best case scenario shows a profit.

One of the services I perform for my clients is to facilitate a Strategic Planning Retreat. As an aid to this process, I have designed a Strategic Planning Questionnaire that the key people in the company answer during the Retreat.

While most companies are able to generate a more accurate strategic plan in a shorter amount of time by using a facilitator, this process can be done without a facilitator, as well. The key to success is following a proven format and keeping the members of the strategic planning team on task. That’s the leader’s job: keeping everyone focused on the process.

Anyone reading this column who would like a free copy of the Strategic Plan Questionnaire I have designed may send me an email with Questionnaire in the subject line. My email address is blee3paris@aol.com.

Caution
If you have not already prepared a profit plan for 2009, it’s not too late. There’s never been a year when a well thoughtout profit plan was more important to a business seeking to generate a profit. In the absence of a 2009 budget, all an owner or manager can do is take a trial and error approach.

STEP ONE: Begin with the bottom line. How much income do you wish to earn in 2009.

STEP TWO: Poll your salespeople, talk to some key customers and commit to a sales number for 2009. Be realistic.

STEP THREE: Beginning with peoplerelated expenses, hammer out an expense budget for 2009 and spread each expense by month. Be realistic.

STEP FOUR: Back into gross margin. How much gross margin do you have to generate to make the plan come true?

Finally, educate each manager, buyer and salesperson on each of the factors affecting gross margin. Don’t leave gross margin dollars on the table because of ignorance. Make lemons out of lemonade in 2009.