May, 2009

Reaction Time

Insights on how to deal with obstacles in today's challenging economy.

By Bill Lee

t the end of March I conducted a survey among the 20,000+ owners, managers and salespeople who read my weekly electronic newsletters. (To subscribe, go to www.BillLeeOnLine.com.) I was thrilled with the number of responses and learned a lot about why so many dealers in our industry lost money in 2007 and 2008: Poor Reaction Time.

MY FIRST QUESTION: In hindsight, what are a couple of things you wish you had done in 2008 that you did not do?

The most typical responses: “I wish I had not waited so long to reduce my operating expenses. In hindsight, I would have certainly reduced my payroll earlier, especially lackluster sales performers and employees with bad attitudes.

“I wish we had been more proactive in providing our sales force with leadership.

“I wish I had been less lenient with past due accounts. I should have been more on top of our accounts receivable.

MY SECOND QUESTION: In hindsight, what did you do in 2008 that you’re most proud of; that is, your very best idea that you implemented?

The most typical responses: “negotiated better deals with vendors and insurance providers…aggressively implemented gross margin improvement programs with a special emphasis on special order sales. I don’t mean just raising prices, I mean monitoring margins for aberrations, miscalculation or identifying pricing ruts we’d gotten ourselves into. If salespeople don’t understand the ins and outs of gross margin, they can’t possibly optimize gross margin.”

“We added several new product lines we ignored in the past. Added a millwork showroom, which improved our gross margin and targeted repair and remodeling customers.”

“We began holding financial statement review sessions with our employees that paid handsome dividends. We’re now hearing more questions and comments about the income statement, not in a negative way, but with a sense of personal accountability and ‘ownership’.”

MY THIRD QUESTION: What has been your best money-making idea over the past 15 months?

The most typical responses: “Invoicing special orders the day they arrived versus waiting until they were delivered or picked up…focusing more on commercial, industrial and repair and remodeling clients; no one is doing this in most markets except the box stores.”

“Holding idea-sharing sessions with ALL employees enabled us to tweak the way we have historically done things and resulted in a higher level of efficiency and productivity.”

“Implementing an installed sales program improved our gross margins and sales at the same time.”

“I took a seasoned salesperson off the counter and positioned the salesperson right in the middle of our display area to focus exclusively on special order sales. Last month, special order sales improved from 25% of total sales to 33%.”

“Over the past two years, we have made a lot of changes in our corporate culture. Some were forced, but others have been proactive. Now, we are getting better and better at this by implementing regularly scheduled one on one meetings and open communication of each store’s best practices.”

Author’s Comments

Manage is an active verb. The most effective managers are proactive at executing; that is, pulling the trigger. They spend less time buried in day to day fire-fighting activities and more time talking with their people and their customers. They do not resist taking action, making changes or implementing new ideas.

While hindsight is twenty-twenty, the most successful owners and managers do a relatively good job of keeping their emotions out of business decisions and maintaining a more objective results-oriented perspective, which improves the likelihood that their reaction time will be faster when an obstacle appears in their path.

Be sure to check back next month, for more indepth analysis of this timely research will be the cover story of LBM Journal.

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.