07/26/2019
A General Manager recently called in a panic stating: “I have been demoted and expect I will be fired by the end of the month. I have a wife and 3 children; will you help me?” The greatest reward this position has granted me is the ability to help people. Candidly, that passion still burns bright and remains one of my great pleasures. Please remember, for those that know me, understand I am speaking from the heart, particularly when delivering the tough message. There is no reason for anyone to suffer, particularly if it’s self-inflicted.
This GM was leading a single location out of 6, serving residential new construction in a metro market that is top 5 in US housing starts, with the other locations serving 2nd tier suburbs and surrounding rural markets. Product mix: 40% lumber and plywood, 60% general building materials. Delivery trucks, outside sales team, lumberyard - a typical industry business model.
In 2015 the owner/operator offered the GM a promotion from the Inside Sales Manager/Operations Manager to General Manager of the location. Hungry, wanting to grow and provide for his young family, the 33-year-old accepted the role. He inherited a location with sales of $8M and a profit line that was losing $500,000 annually. The location had 35 employees, and when I asked about the turnover, the response was “the previous manager hung on to everyone regardless of performance.” The young, aggressive, 33-year-old newly-appointed GM goes to work. He circles the team of 35 people and announces, “I am excited to support your growth, but everyone must understand BFS, BMC, 84 Lumber and list of 7 other competitors are fighting every day to take our customers. We are moving forward with only top performers and I hope that’s you.” Solid opening address. I asked him why not share the financial status of the business? “Well, the owner does not want anyone knowing the profits. I had to fight to get him to share them with me as the GM. There was no way he would allow our $500,000 loss to be public.” A common mistake of independent owners.
2015-2016: Setting clear expectations for every person on the team, in the first year he grew the sales from $8-$16M while improving the profit from a $500,000 loss to $20,000 pre-tax profit. Along the way, he reduced the headcount from 35 people to 16 people. Good first year.
2016-2017: He grew the sales to $22M and $500,000 pre-tax profit. OK, what is his plan to start making money, and when does he plan to implement it?
2019: Year-to-date sales for Quarter 1 and 2 are $6.5M and profits are $60,000. Oops!
Asking him to explain the sales revenue drop, “Well, we decided to commit 45% of our total sales to DR Horton. The owner was excited and thought it was a good idea at the time. However, this last round of pricing, we lost the DR Horton account and $9.9M in sales.”
The GM explained that when he took the position, winning was defined as increasing sales and generating a 5% pre-tax profit. He went on to explain he was confident he could keep the DR Horton business by out-servicing his competition. Asking him, “Given the competitive options, why would customers choose to buy from your business?” His response was a classic under-developed GM answer: “Service, On Time and In Full (OTIF) and relationships we develop with our customers.” Tony: If that was working, why was your profit only 2% and why did you get fired? GM: “Well, I should have hired more sales talent to capture more sales and dilute the DR Horton customer concentration.” Tony: “Hire more salespeople and continue to sell despite making not far from a break-even profit line?” GM: “ I hear you. I put my heart and soul into this position, fixing the operations, developing solid people and personally spending 2 days a week in the field with my sales team. But in the end, I still failed. Now what do I do?”
I wish I could say this scenario was rare, yet our industry wonders why we don’t attract and keep young talent. A solid up and coming 33-year-old leader was set up to fail before he took over the position. As for mentorship, proper guidance and development, what little was provided was terrible. A good operator would have surveyed the current and targeted customer base, determining answers to the following questions: Given the competitive options, why do customers buy from us? A good operator would know who the competition is, what they do well and where their weaknesses are while developing a unique and competitive offering, designed to be profitable.
Service and OTIF have not been a competitive advantage for independents since 2006, particularly in a top 5 metro market. Consolidation of the top national production builders has crushed that fluff out of the supply chain. The location had the DR Horton account simply because they were the cheapest for a moment in time, likely due to a Blue Moon buy on lumber in a rising lumber market. Good operators don’t build businesses on a lucky buy. A good operator would have known that being the low-cost provider fighting in a top 5 market, for a top 3 volume builder, against BFS sales of $7B, 84 Lumber sales of $3.8B and BMC sales of $3.6B is foolish for any OTIF/service-only value offering, $50M independent. Out of the gate, they are giving up 2-4 points of margin on the buy-side to their giant competitors. It’s nearly impossible to win sustainable, profitable share with the low-cost provider strategy as an independent.
Is it the sales team’s fault? Salespeople have virtually no impact whether people by Apple’s iPhones, iPads and air pods, their products are simply better than the competitive offering. Good Building Materials leaders look at their business offerings the same way. It’s common for leaders to lay the blame on the salespeople as a smokescreen when it’s the operator’s poor strategic awareness that is at fault.
General Managers/Location Managers:
As I guided the GM in this example, getting fired was 50% his fault. He, like many, is much too driven to allow a foolish owner/operator to derail his personal growth. He is too smart to be incurious in developing his strategic thinking abilities. While it’s true, being a tactically-driven operations manager creates obstacles thinking strategically, it’s a weak excuse. His homework was to study Michael Porter, a Harvard Professor and a world-renown strategy teacher.
A great presentation through which I have guided many leaders:
Understanding Porter, an excellent book and must-read for any leader: https://www.amazon.com/Understanding-Michael-Porter-Essential-Competition/dp/1422160599
A great article:
Check your ego at the door, forget about your strengths, know your weaknesses intimately and take action closing the gaps. Seek the highest level of training, development and mentorship to focus on your gaps. If you’re not finding it, call me and I will align you with a career path and leader who will invest their time in you.
Owners/operators:
Are you brave enough to ask the Bill Gates questions of yourself? Do you enjoy being an operator? How good are you at it? Or should someone else do it? Your P&L financials are the ultimate report card. The isolation of being an independent owner/operator lends to the hamster wheel effect - if I run faster, get up earlier and work harder, I know the business will get better. Our expertise is helping leaders get off the hamster wheel and embrace the shortcomings of the business model, build from the strengths and surround themselves with the talent needed to be successful.
Comments