Simple Steps to Immediate and Sustained Turnarounds for LBM Dealers
It can happen to any dealer. You wake up one morning with an undeniable and arduous task before you. Your company is in trouble – Real Trouble. You can feel it in your bones. You can see it in your financial statements. The credit line at your financial institution is uncomfortably high, maybe at the limit. Your receivables look terrible, as you have hesitated to press too hard on customers who are also friends. You’ve missed a few early payment discounts from vendors. Bonus payments to hard working, well intending staff may need to be reduced or eliminated. You are over inventory and out of stock. Why in the name of humanity are you in this forsaken business in the first place?
Sometimes the trouble has risen up in a flash. A handful of critically important high volume customers may have gone belly up due to either market factors or due to their own mismanagement issues. They owe you thousands, and all critical cash flow comes to a screeching halt. Maybe a competitor – national or local – becomes a threat to your customer base or talent pool. Major employers in your market may have shifted their focus with devastating economic repercussions. This is the case in Michigan, where regional economic challenges cascading from the on-going collapse of GM and Ford are clear cutting dealers. Michigan’s decades long “gold rush” of prosperity driven by the automotive industry offered plenty of business for everyone. The only critical consideration for a dealer was keeping up with demand.
Employees of Ford and GM no longer think about another new house or a second home at the lake. They are wondering how to make the payments on the house they have now. Dealers are wondering about their mortgages, too. Some are losing their businesses while many others are losing the heart required to continue to make their businesses succeed.
While devastating, sudden business troubles are the exception and never the rule. Most often a turnaround moment does not come suddenly or unexpectedly. Typically, the health of an organization worsens gradually. Slack practices in multiple executive areas erode operations over time and lack best practices and policies to pull you back into sound operations. Yard and Delivery practices began slipping long ago. Now, you are loosing your shirt due to inventory losses from poor delivery execution and from service levels in the yard that just stink. You ignored early warning signals in A/R so now you have huge past due debt. Your sales staff is unchallenged and habitually spends all available time with routine customers (Likely these are the customers who haven’t paid their bills and owe you hundreds of thousands!) and no time with targeted growth accounts (The customers who do only a fraction of their business with you now, but ALWAYS pay their bills on time!). . Without routine merchandise analysis or strategic business responses, lousy product performance contributes to suffering finances. Detail after neglected detail has turned seemingly insignificant leaks in your business into a disastrous deluge. How will you weather the storm?
Your saving grace has been that in spite of all these little troubles pervading your organization, you’ve outsold your inefficiencies. Often, the salvation was that your competition has operated more poorly than you. Their pathetic performance has been your competitive advantage. Heck, we have all enjoyed periods of hyper-abundance and the grace of finishing just ahead of a bad competitor at some points of our careers. It’s great while it lasts. The trouble is that it never lasts. Whether catastrophically through sudden market changes, or chronically through gradual atrophy of your business muscle, finally you will meet your “Bubba” who heartlessly and succinctly presents you the bill for mediocrity. And it’s a big bill, too.
The good news is that turnarounds can be remarkably successful and be great for overall operations and for long term morale of an organization by quickly and effectively turning your organization from a seemingly hopeless situation to one of efficiency, effectiveness, profitable growth and hope. Long neglected details in finance, operations, human resources, merchandising and sales receive much needed and long over due attention and your company prospers in the wake of the rejuvenative tune up. While any comprehensive turnaround will be unique to a particular leaders or markets character, here are principles that will be part of any successful turn around venture.
Thorough and Comprehensive Assessment
When an executive calls me for help, I discover two pervasive states of mind upon my initial encounter with the leader and their team. The group will be frozen solid from fret and worry or be in a state of frenetic, knee jerk, non-logical and disruptive activity. Both are based in fear and desperation. Neither is solid ground from which to make any intelligent decisions. Such unhealthy states of mind simply do not foster clear seeing or sound judgment.
The solution is to conduct a comprehensive, thorough assessment of the state of the business in each of the fundamental executive domains of finance, operations, marketing, merchandising and human resource development. Failing to perform this overview will result in improper response planning and reduced effectiveness of any corrective steps. With the assessment, insights are gained that reveal the root causes of the organization’s troubles and it is there at the root of things where the most effective, longest lasting changes can be promoted.
Our industry is filled with hard working action-oriented leaders who just want to make things happen. These hot blooded leaders shoot first and aim later, possessing little or no patience for analysis. Equating analysis with paralysis, these well intending professionals apply activity (strength) where effectiveness (power) would better serve. Technique is the point. Well placed energetic actions yield immediate results. Poorly placed energetic initiatives make things worse, exhausting participants and resources with minimal or negative returns. Assessments make the difference.
The fear is that the analysis will take too long. Truth is that a few days combing through attitudes and activities facilitates better strategic responses every time. A full assessment actually takes a minimal amount of time and energy compared to how long it has taken to get into trouble in the first place. No parent would subject a child to medical treatment without thorough diagnostics. Let it be the same with our organizations who are no less living and breathing organisms than our children.
Stop the Bleeding
It becomes very clear, very fast exactly where the arterial spurt is within a turn around candidate. I find the same ones over and over again anyway. Staffing will be upside down compared to sales, gross margin and targeted customer. Sometimes overstaffed; sometimes understaffed. Always employees will be unchallenged and undirected.
I recall a visit to a dealer in far Western New York a few years ago desperately needing a plan in response to a Depot arrival. I swear that their employees were the most under producing, filled with excuses group of people I have ever met. The owners knew this. They admitted it to me. The average tenure of their pathetic sales staff was over 20 years. They were the worst sales team I have ever encountered. The reason they were still at the job (actually they were all firmly planted on stools failing to rise from their perches even to greet any customer) was “I need to be loyal to my employees”. Loyal? His team was killing his business.
Other times the big blood will be in accounts receivable. I have one new client with 45 % of their A/R past 90 days. It is millions of dollars. I wasn’t stunned to find it as I have seen it before. What did astound me was that a majority of the ninety day and over customers were STILL HAVING MERCHANDISE SHIPPED to their job sites. Some of these accounts unpaid for a year were still receiving goods on account and no lien on the project. Talk about bleeding to death!
My Grandfather was a stickler for customers paying their bills on time. His views were simple. “Customers who don’t pay their bills on time aren’t just liabilities; they are enemies to me and to my family.” He rarely if ever had a delinquent customer even during hard times. People just knew that he required payment on time and they paid on time or they did not get any more lumber.
If there are poorly producing employees that truly cannot be reinvigorated, then take steps to update the team. If there are customers who are not paying their bills, stop sending product, perfect the liens and reach out to more credit worthy customers. The same simple and pragmatic steps must be taken over and over again in the areas where a company is truly bleeding to death. I know this sounds overly simplistic. Having seen frozen and panic stricken management teams habituated into illogic, I know that such simple thinking is not even possible at times.
Plan for Profitability
Budgets and their required associated business plans are essential to affect positive change in an organization and to keep it that way. The best budgets are built from the bottom up. The first decision is to establish an achievable and respectable Net Pre Tax profit as a target for the next several subsequent years. Then I work with a team, beginning with their profit target up through all essential issues that contribute to the profit goal. We discuss fixed and variable expenses. We discuss and target right headcount and compensation levels for all positions and all employees including the owners and the non-owner employees.
The over arching message here is that once a profit target is established, every line on that budget must have an action plan and underlying principle that supports that established goal. Fundamentally I am referring to the integrity of the organization. Integrity is the condition where all actions contribute to agreed-upon goals and everyone keeps their word in support of the targets and their contribution to the team success.
Reach out to Customers
Look at your customer roster right now in descending order from top customer to least customer in volume terms. What you will find is a few (less than 20%) of your customers are producing the majority of your sales (more than 80%). I realize this is a generalization, but I will not be far off the mark. Now look at the rest of the customers and ask yourself some simple questions. Why don’t these customers do more business with my sales staff? What is the real revenue potential in these 80% second tier customers? What is the credit worthiness of these neglected customers?
I find that top customers are most often the ones who are huge credit problems and second tier customers demonstrate far better credit worthiness. Is this true for you too? Silly isn’t it; how often our top customers take up most of our resources, drive down our margins and are slow to pay their bills. It is no wonder that LBM dealers get into big trouble.
The optimum action here is clear. Target the most desirable customers in the second tier, one’s who will be good business partners, who are credit worthy, who appreciate a job well done, who will healthily challenge you and your team to stretch to new operational and merchandising horizons and take darned good care of them. Spend time with desirable growth or you will spend your time with ones that are trouble and offer no room for revenue growth at all.
After these targeted accounts are assigned to specific sales staff, owners and senior executives should be actively involved with these customers too. Executive time with targeted growth customers mending fences, discovering new merchandise opportunities and to learning what these desirable customers really want from their assigned salesperson is executive time well spent.
Perhaps the greatest but most important challenge in a turnaround is the employees and the executives to maintain and communicate optimism. Effervescent, constant, boldly expressed enthusiasm is the most contagious state of being in the world; along with depressing pessimism. Both are catching. Either is a choice. One will serve to build an amazing team while the other will kill a company.
I know how easy it is to slip into a constant state of negative thought. When the chips are seemingly down we all can slide into a funk. Leaders who want to see immediate and sustained positive results simply do not have the luxury of being pessimistic. Realistic, yes, but not openly pessimistic. An average individual is keenly aware of all kinds of limitations. Misguided pessimistic people in our lives will surely remind us of what we can’t do, what we will not be able to accomplish, even what ought not to be even attempted in order to avoid painful disappointment.
Leaders are called to cut through all that negativism with a clear, confident message of what can be done, what it takes to succeed and what should be attempted for the sake of unimaginable achievement. Leaders are bright beacons of hope who hear and heed the call to optimism and are the ones who make a profound difference in the individual lives of their employees and in our industry as a whole. It is the most fundamental role of leadership to create possibility where none was seen before. That will not be accomplished through negative attitudes.
LBM dealers awakening to a harsh sobering reality that their organizations require immediate, comprehensive and sustained improvement in order to survive can be assured that most of the time the cause of the trouble has been internal. Failure to upgrade your staff, vigorously challenge your teams toward profitable growth and update employee skills will lead to deep and pervasive difficulties. Failure to build a budget and business plan from the “bottom up” that targets profitable operations will finally run you into bankruptcy. Overlooking the disciplines of routine analysis, our performance and responsive strategic adjustments will eventually lead to dauntingly huge business refinement initiatives. Pessimistic attitudes perpetuated through negative language will rot yourself and your organization from the inside out.
BUT, all of these and 90% of all the other factors leading to your business woes are absolutely, positively within your control to avoid or correct. That means that the single most important component of sustaining a successful LBM organization or turning one that is in trouble is YOU and YOUR TEAM! And the best action, the most poignant, powerful position from which to run your business and your life is to be BOLD. Boldly establish healthy operational practices that pay attention to the myriad details of retail. Boldly gut waste from your organizations. Boldly reach out to growth possibilities within new customers and products. Boldly communicate a message of absolute optimism and amazing possibility.
Being meek makes you weak.
Life favors the bold.