Opportunity–and Risk
Before, the company really was about one yard–Anaheim–and some minor branches. But with the Barr acquisition came more equality among the yards as well as more, and more specialized, employees. That fostered the evolution of a performance-driven mentality that might best be called disciplined entrepreneurship.
The discipline part reveals itself in what Ganahl has chosen not to do. It’s not in multiple geographic markets. It doesn’t judge success by market share. It avoids buying property when the market is hot. Until it launched a test recently, it didn’t dabble in installed sales, and its showrooms are modest at best.
What Ganahl does possess in spades is attention to detail and a lot of motivation–financial motivation, particularly–to help the company make money.
Branch managers get to stock and run their stores in whatever way they believe will generate the greatest profit–and in high-profit years, the annual profit-sharing bonus can account for 75% of a manager’s pay. (On the other hand, their yards are charged with the annual depreciation cost of their capital assets.)
Similarly, sales reps are free agents when it comes to negotiating prices. They even can sell at below cost if needed, but since they’re compensated based on gross profit, there’s scarce motivation to do so.
All told, roughly 15% of all Ganahl staffers have pay plans that are tied to profit and loss statements. And the incentives don’t stop there. Gate guards can make hundreds of dollars extra per month by spotting errors. Collections officers get monthly rewards for roping in recalcitrant payers. (Only 0.24% of all accounts receivable dollars were written off in 2009, and in 2010 the collections officers took in $78,000 more than was written off.) All non-management people are eligible for bonuses based on company profits. And the ESOP plan means every vested employee has reason to care about the company’s long-term bottom line.
But there’s a flip side to that coin, one that probably has an even greater influence on the company’s culture.
Base pay for managers and sales reps is so low most cannot survive on that alone, so when bonus dollars evaporate, those folks could quickly end up eating hot dogs every night. OSRs not only see markedly fewer commissions in hard times, they can lose virtually all of what they earned if the customer doesn’t pay the bill within 90 days. And when the ratio of labor to gross profit is one of your company’s key metrics, there’s powerful motivation to cut jobs fast. Ganahl’s workforce today is about 40% smaller than it was in 2006, and in some branches half the staff was laid off.
“Part of Peter’s philosophy is that when you cut, cut fast,” says Pete Meichtry, Ganahl’s vice president for merchandising, purchasing, and advertising. “It’s a business, after all.”
Clearly, Ganahl isn’t the kind of place that tries to overload the lifeboat when storms hit. There’s an implicit understanding that employees are responsible for their own well-being by salting away bonuses in the good years for use when times get lean. And by pushing merit-based pay even more in a recession, as Ganahl did, the company drives home the need to hustle during hard times.
“The fact that we didn’t make it easy to sell less and be comfortable helped us,” notes Jim Taft, the recently retired Anaheim manager.
This risk/reward attitude, what Los Alamitos yard manager Tom Barclay calls a “gross profit state of mind,” is one of Ganahl’s defining traits. It’s such a powerful mindset the company often doesn’t need to weed folks out–most leave on their own. It also accounts for Ganahl’s tight, team-oriented attitude, one that comes when people of like minds march in the same direction.
Or as Kidder, the Buena Park manager, puts it: “Once you drink the Kool-Aid, you feel part of the family.”
In a primer to managers called “The Intelligent Lumberman,” Peter laid out many of the company initiatives designed to encourage a performance-driven culture. “These practices could be modified in the future,” Peter wrote, “so long as we make it very clear that we are a meritocracy, where people earn money, respect and status for what they deliver and not for seniority, title, or last name.”
This holds even when your name is Mark Ganahl and your dad runs the place. After several years of managing the Corona yard, Mark has just taken over the Anaheim headquarters from Taft. That would seem to put Mark on track to lead the whole company one day. But every senior executive–and Mark himself–stressed that he will have to prove himself at Anaheim for a few years before he could be considered for a move upstairs.
Life in the OC
Detractors might sniff that the company’s success is an accident of geography–that today’s Ganahls are blessed descendants of Austrians who came to Los Angeles in 1884 and Anaheim in 1904, times when you still could find orange groves here. To some extent, the skeptics are right–Ganahl Lumber is fortunate. Its core trading area of Orange County is ringed by mountains to the east, the military’s Camp Pendleton to the south, the Pacific Ocean to the west and relatively unfashionable parts of Los Angeles County to the north. Packed into an area that’s less than 40 miles long by 20 wide reside more than 3 million people with median incomes 50% above the national average. Hanley Wood Market Intelligence estimates the median existing home in Orange County sells for $440,000.
But there’s a dark side to that scene. Orange County was the epicenter of the subprime mortgage business, whose collapse helps explain why the county has lost 175,000 jobs–roughly 12% of its total payroll–since 2006, and has seen a 70% fall in building permits. Conditions are even worse next door in Riverside County, where Ganahl has one yard. What was one of the country’s hottest markets has suffered an 86% drop in building permits since 2006 and a 14% drop in employment. And Ganahl competes for DIYers and smaller pros with at least 40 Home Depots and Lowe’s stores.
“This isn’t lotusland,” says Lonnie Schield, who tussled with Ganahl while he ran Terry Lumber and after Terry was acquired by Stock Building Supply. “This is a tough, tough environment.” Ganahl might be the only notable independent left in Orange County, but it still has Stock and ProBuild to contend with in surrounding Los Angeles, Riverside and San Diego counties.
Given those big dogs, Ganahl decided to avoid competing in the lower-priced production home market and instead focus on the folks who cater to MOM–mountains, oceans, and movie people. That philosophy has its roots in a branch Ganahl ran for decades in Lake Arrowhead, a popular getaway for Hollywood stars in Raymond Chandler’s day. Today, MOM is shorthand for remodelers (who account for 40% of Ganahl’s revenue) and small builders (another 20%) who work on high-end homes. Ganahl stores are big on moulding, doors, windows, and finishes.
Because Orange County is so densely populated and most Ganahl yards are within 10 miles of each other, these smaller pros tend to pick up their materials rather than have them delivered. Viewed from above, most Ganahl yards look like beehives in the morning, with contractors running all over the back lots to pick up studs and grab boxes of nails. (Thus the importance of gate guards.) Such a self-service arrangement helps Ganahl because it reduces the need for trucks, drivers, and gas.
