One of the most revealing economic indicators for our industry outside of housing starts is the list of LBM dealer closures that ProSales has compiled. The results are literally all over the map and those left standing can capitalize on this opportunity.
But don’t fulfill the order just yet. At the very least, spend one day doing to some research.
New Business May Be Bad Business
First, determine which builder customers are creditworthy and would be a good fit for your company. Run a credit check, review the financials, and follow your normal customer approval process. But don’t stop there. Meet their employees and visit their offices and job sites. I recommend that you put your feet on the new customer’s ground before you begin a long business relationship. Would you purchase a piece of real estate without first looking it over? So why not think of your new customer as real estate?
A failing company can be highly tied to a group of failing customers. You do not want to inherit these customers. Instead, you want to attract the best customers, those that have been loyal to the competitor.
Tap Workers’ Experiences
Meanwhile, as you search for these customers, consider hiring employees of the fallen yard. When you interview them, ask tough questions not only about their on the job performance but about customers’ performance. Many times I find that ex-employees will provide more information about their past work environment as they get to feel comfortable during the interview.
Here are some examples of subjects you should explore during those interviews:
Another means for finding information about customers and employees is to ask existing vendors. If a vendor is currently supplying you and has supplied the failing dealer, they have a vested interested to replace the sales in the market by supporting you. Support in this case is more than supplying product; support is supplying information. The vendor wants for you to succeed. If you can pick up additional sales and sell more of the product, the vendor will jump in and provide advice.
Some acquisitions in our industry were suggested by vendors that wanted to move products into markets. A vendor making a suggestion to a dealer is no different than you, as a dealer, making a suggestion to a future homeowner about what contractor to use to build the house.
Bill’s Bad Experience
About nine months ago, a national chain had publicly announced upcoming closing locations and dates. I realized that one of these locations was in the same community as one of my clients, a local company.
That day, I called the president of the local company, who I will call Bill. I asked him about the opportunity and how this competitor’s closing would affected his business. He said he was excited because the national competitor was a thorn in his side. Bill also told me that during the process of closing, the competitor was running low on inventory and had dropped the ball on services. He had already taken some customers.
A few months later, I asked Bill about his DSO, or average number of days to turn the accounts receivable balance. The number was climbing to more than 60. That’s high, given that the average DSO for a contractor yard in last year’s Cost of Doing Business Survey was 48.37, and Bill’s yard always seemed to be below that average.
Bill then told me about a rental property that he now owned as collateral for bad debt because a builder could not pay his bill. The bad debt builder was inherited from the competitor. While this story is familiar, and many of us have experienced this type of customer behavior, we can’t be in denial; we must to be prepared.
The moral of the story: All of your competitors’ business is not necessarily good business. Print this out and put it in the hands of every employee at your company.
What Matters Most
Let’s end on a positive note. There’s another dealer that I work with that I’ll call Profit Lumber. It has grown during these tough times as their competitors have fallen. Yes, it has grown because the competitors have exited the market faster than the sales decline in the markets that they operate. Profit Lumber also made cutbacks as they saw the market dip. But, again its sales increased.
Having a strong balance sheet is a premise for taking on more business, but you still have to sell your services. At the end of the day you can go to a job site and look at the products, and hopefully these were supplied by you. But very seldom do I see superior products in the field from one dealer to another. I do however see superior people, I see superior customers, and I see superior vendors Align your company with good people and your profits will rebound.
Filter and find the best. Don’t settle for less.
Chris Rader is a consultant based in Lafayette, La. Contact him at crader@radersolutions.com.
