When the going gets tough

Though times are tough for many contractors, better days are around the corner.

“These cycles are fairly consistent,” says Michael Stone of Construction Programs and Results (CPR), a consultancy based in Camas, Wash., and a regular columnist in Rural Builder. “The current conditions will stay this way until right after the next presidential election. People are getting distracted by politics, but it will turn around.”

At RAM Buildings of Winsted, Minn., general manager Craig Jackson agrees, “The last 12 months have been a challenge for us.” The company constructs wood- and steel-frame buildings for the commercial, industrial, agricultural, equine and storage markets.

“There’s a lot more builders in our area that we haven’t heard of before,” he reports, as a decline in residential construction has prompted many homebuilders to compete for nonresidential projects.

Across the country in Peyton, Colo., president Tom Brown of Barns by Country Woodshed is also contending with fallout from the downturn in housing. “With mortgages in trouble, there will be an economic slowdown all over the country and it’s going to hurt us,” he predicts.

Though his company focuses on the equine market, Brown has recently begun building gazebos to keep his crews busy. “If homeowners can’t make their mortgage payments,” he explains, “they won’t be building barns.”

Kim Gee, vice president of Gee Building Systems in Shenandoah, Iowa, agrees that good times and bad are cyclical. Yet the inevitable slowdowns can be opportunities to take stock and retool.

“When the farming crisis hit in the 1980s, being strictly an agricultural business just wouldn’t work anymore,” she says. The company has since diversified and now offers grain bins, post-frame buildings, and garage doors. The strategy has helped Gee Building Systems weather subsequent storms, but tough times are still a challenge.

“Customers hear about recession and the downturn of the economy,” she observes, “and feel that major purchases are not the wisest thing to do.”

Time to get creative
Despite the temptation to slash prices and generate new projects, Craig Jackson advises, “Just dropping prices isn’t good for the long run. It’s important to identify what you’re really good at, so you can leverage that advantage and not take jobs you have to sell too low.” In other words, rural builders can cut back on the jobs they perform less efficiently and emphasize those projects that play to their strengths.

“We’re a post-frame builder,” Jackson points out, “but we don’t limit ourselves to new construction. So we can do a lot of different things to supplement our business, like remodeling and wood fencing for the horse market. When times are good, a lot of this business gets passed over. But now we’ll even take residential projects like building an interior wall.”

Yet even as the company looks for potential niche markets, he adds, RAM Buildings is careful to “take on projects for which we already have the equipment, such as re-roofing of barns.”

Like most dark clouds, tough economic times can have a silver lining.
“One of the positive things that has come out of the current economy,” Jackson explains, “is that companies like ours that succeed in generating enough work can attract a lot of skilled carpenters, people who have either been let go or had their business fail. There’s a significant increase in the talent pool, because there are guys who weren’t on the job market before.”

At the same time, there can be an influx of new competitors. “They were building homes when times were good,” Jackson comments, “but now they’ve come into the equine market with the assumption that barns are easy to build. So we have more competitors — and the builders who have been around awhile are hungrier. On top of that, customers have learned how to play one contractor off against another.”

Survival strategies
Squeezing out unnecessary costs is another survival strategy. “We lean on our suppliers in terms of price and consistency,” Jackson remarks, “and we’re more conscious of inefficiencies in our own organization as we try to reduce overhead. When times are tight, the weaknesses are more apparent, including some we hadn’t seen before.”

On the positive side, however, RAM Buildings can benefit long-term by becoming a more efficient operator. Boosting the bottom line also means generating new revenues, and RAM Buildings has taken a proactive stance by hiring a sales representative to cover a new territory north of the company’s home base.

“It’s pretty simple,” Jackson concludes. “The way to be profitable is to increase sales and reduce costs.”

Jackson believes that tough times call not only for examining your own operations, but researching what others are doing. “Look at what the market is geographically and what kinds of buildings are being bought,” he recommends. “Study the competition to find out their struggles. Visit buildings and find out what customers liked and didn’t like. Then find people in the industry who aren’t your direct competitors and use them as mentors. I consult a fellow NFBA (National Frame Building Association) member several times a year and get his opinion on ways to improve our business.”

Be sure to stay focused
Innovative marketing designed to cultivate consumer goodwill and distinguish his company from the competition has been used to good effect by Tom Brown.

Barns by Country Woodshed offers its target audience free barn seminars in which, he says, “We tell them what to look for in a barn builder and review the complete process of how to build a barn. And since we have six model barns on location, we can discuss what their needs are, show them options and give them a price right there.” Over the years, these seminars have resulted in 449 projects being sold and built.

In normal times, the seminars usually keep Brown’s company booked six months in advance. “But last year was the first time that we’ve been slow,” he reports.

The seminars have helped Barns by Country Woodshed to remain active in the equine market. But because he desires to keep his two crews on the payroll rather than lose their expertise, Brown decided to avoid layoffs by expanding his product line.

“I’ve got two crews depending on me to bring in the business and keep them busy, and so I’ve taken on a line of gazebos that will supplement our income,” Brown explains. Since the items arrive in kit form, they are easy to assemble and can be built in any type of weather. But because the equine market is his core business, he has decided against further diversification.

“I don’t believe in too much diversifying,” he states. “It’s easy to lose sight of the original mission.”

Instead of banking on variety, Brown relies on superior service and then staying connected to his customer base. “We send out letters to our customers letting them know it’s a good time to get their barns checked out. If anything has gone wrong and we’re at fault, we’ll fix it without charge,” he notes.

The strategy has been successful in generating occasional repair and maintenance jobs, and fostering a positive reputation for Barns by Country Woodshed. Just as important, reaching out to past customers keeps the company name in the minds of its target audience. And that translates into referrals and long-term sales growth. “Through our customer letters,” says Brown, “we’ve maintained a good customer base.”

While economic cycles come and go, Brown also faces the challenge of changing demographics. Compared to when he started in the barn business 25 years ago, he observes, “In Colorado we’re seeing development expand into rural areas. So we must go further out to get business.”

To generate that business in the adjacent county, he has started advertising on television. “There’s a fine line we have to walk,” Brown observes. “We don’t want to get too big and lose sight of our mission. But we want to stay busy. Also, traveling adds costs. When jobs get too far away, you have to put the crews up in a hotel or consider buying an RV.”

As times change, so do builders. “People get older,” Brown says, “and they sometimes forget why they went into the business. If you’re in it only for the money, you’ll fail. Even in tough times, you need to keep your overall vision in mind.”

Keep a positive attitude
Like other rural builders, Kim Gee is facing the twin challenge of anxious customers and a need to cut overhead.

“Whether they’re acting on hype or reality,” she relates, “some of our customers are just waiting out the storm.” As for Gee Building Systems, she adds, “We haven’t made any major purchases and are holding off on some improvements. And to keep costs down, we try to be creative. We give our workers paid time off instead of overtime and, if we have a slow week, they go home early.”

Reluctantly, Gee may be compelled to lay off one or two workers this winter. Cutting expenses is one thing, but cutting quality only hurts sales in the long run.

For example, Gee Building Systems had opportunities to be a dealer for various national or regional post-frame building suppliers. “But we waited for an opportunity to bring on the line of Wick Buildings, in lieu of other brands that may have cost less,” she explains. In the end, building with quality materials and workmanship saves money. “We have to fix whatever we put up,” Gee relates. “So if it’s not put up right the first time, it’s a nightmare.”

Though Gee Building Systems may submit a higher estimate than a competitor, Kim Gee can usually close the sale — without sacrificing her margins — by pointing out the quality and value of its work. Customers are also reassured that her company is fully insured, unlike some other builders whose prices may be lower.

“We remind people of how they always want a quality car or truck, even though they might trade it in a few years,” she says, “but that a building that will be around for many years to come.”

Finally, a positive attitude and the will to survive go a long way in tough times.

“As an owner, it can be hard to stay upbeat. You want everyone to succeed and hate to lay anyone off, even if it’s for the betterment of the company,” Gee remarks. “Then again, I originally bought this business at a bad economic time, which shows that success is possible. Rough times are hard, but they give you a chance to find out what you’re worth.”

In fact, as Gee herself discovered, a bad economy can be turned around into a good opportunity. For someone who may be ready to run their own business, she advises, “Find a company that is looking to sell. Then take an entrepreneur class and find a team of industry experts who can help you develop a solid business plan. Inexperience doesn’t have to be a disadvantage. Rough times can be the best times to get into business, because you’re bringing in new ideas and energy.”

Continuing education
Helping builders generate those new ideas and energy is the goal of Michael Stone, a veteran of more than three decades in the construction industry. As an example of the creative thinking an outsider can bring, he points out a growing problem that few contractors consider.

“One of the worst threats to the industry these days is customers would rather go to court than pay their bills,” Stone relates. “Thirty years ago, it was one out of 30 clients. Now it’s one in 14.”

The best way to prevent problems, he advises, is “reading an hour a day to educate yourself on how to manage your company and your money. Continuing your education is like buying an insurance policy that will guarantee success, and can be your greatest asset for getting through a crisis.”

Another common mistake made by rural builders, continues Stone, who writes the Management Talk column for Rural Builder magazine, is relying too heavily on referrals. Since contractors cannot control when repeat or referral customers may call, they cannot make a business plan. “When you have a downturn in the economy, the builders who go broke are the ones who depend on referrals and forget about marketing and advertising,” he counsels.

“The biggest issue right now is that fewer people are willing to buy. So you must increase your advertising to reach a wider range of people. It’s not optional. Referrals should be the icing on the cake, and not the whole cake.”

Another mistake, Stone adds, is “running around and giving out bids, without getting commitments from customers. Before you do anything, know who the decision-maker is and what the customer is willing to spend.”
In tough times, builders can ill afford wasted effort, nor can they afford wasted costs. Yet, becoming more efficient does not mean cutting corners. “Make sure you’re licensed, bonded and insured,” cautions Stone. “Don’t circumvent regulations and be sure to hire people who are legal.”

Neither should rural builders neglect other basics, such as the principles of good salesmanship. “Get out and schmooze,” Stone suggests. “Hand out at least one business card every day. And when you get a lead, don’t just be an order-taker. Go out and see potential customers to build trust.”

Such basics can go by the wayside when times are good and business is rolling through the door. “But if you’ve gotten lazy,” Stone warns, “that’s a luxury you can’t afford.”

See more advice from Michael Stone in his Management Talk
column, also on this web site.

Related Posts:

  • No Related Posts

COMMENT