Sparks from Flint: Big Lessons from a Small Dealer in Michigan

Kenneth Wilbanks

January 2008

Of all the cities in America, none are suffering economically more than Flint, Michigan. My research throughout 2006 and 2007 showed that the vast majority - over 75% - of the counties in Michigan showed a decline in construction permits, from 50 to 90%! In spite of national and intense local decline of construction in Michigan, a dealer in Flint is taking principled steps toward excellence with valuable lessons for dealers everywhere. I am delighted to share this story, complete with descriptions of the ongoing right strategic actions being taken by Michigan Lumber, sparking profitable growth where we feared the fire was out.

From Heyday to Decline

From its humble beginnings as a sawmill, and its midlife as a lumber and fuel business in the late 1800’s and early 1900’s, Michigan Lumber Company enjoyed continuous operating within a traditional LBM model for years. The discovery of a fabulous “niche,” supplying building materials to the expanding industrial automotive factories, placed Michigan Lumber Company into an apparently endless high volume steady margin revenue stream.

This stream continued even though the war put the rest of the country into a conservation mode economy, as the very same industrial and automotive factories built with supplies from Michigan Lumber required extensive materials for reconfiguration to provide war armament. The booming pace (the American auto boom, the baby boom, and the housing boom) led to unparalleled growth and prosperity. Friendly and easy business continued to make Michigan Lumber Company the materials supplier of choice for the regional industrial sector and for traditional construction channels.

With increased competition from the rising number of local and regional LBM dealers, Michigan Lumber successfully began targeting the premium customers for top grade supplies and services, and over time inadvertently began avoiding, even scorning “lower margin” products such as framing lumber, windows, doors and roofing. The next generation of management at Michigan Lumber Company was able to glide into the future, simply resting on laurels with an excellent reputation for trustworthy service providing specialty products and quality hardwoods to industrial and automotive markets.

Another generation of leaders encountered a dwindling revenue stream and treacherous counter-currents without the muscle or technique to navigate the changes. In the summer of 2006, the seventh year of accelerated decline brought cousin owners Chuck Olson and Gerry Haan to the choice point of immediate action: a fast turn-around or a sudden shut-down. They called on me to evaluate their business and alter their course. “I knew we needed more than a consultant,” said Gerry Haan. “We needed a professional with vast industry knowledge, maturity and judgment to serve on our board of directors, and the steel to hold us to right action.” The chemistry was great between the three of us, so we formed an “action board” to return the company immediately to hope and healthy operations.

And what a return!

While most LBM dealers in America are struggling and reporting flat sales performance over 2006, Michigan Lumber finished November ‘07 with almost 45% over the previous year’s year-to-date totals. That’s correct. Almost 45% UP over 2006 Year to Date! Not only that, even though overall gross margin percentages were lower than what the owners previously enjoyed, overall company profitability has completely outperformed every single previous year’s pre-tax profits since April. This modest firm is located across the street from a garbage recycling plant, on a dismal back street in Flint, and is significantly scarred on the walls from stray bullets and shotgun blasts from neighborhood “disagreements.” Clearly, their recently won success is NOT due to their location. This little shop is making money, gaining market share from a kick ass attitude and the associated kick ass actions as well. Remember the old adage? “Nothing happens until the Cash Register Rings.” Michigan Lumber’s register is ringing.

Dealers of any size learn something from Michigan Lumber Company. In order to truly turn around their failing business, they have shown us shifts in attitude, creativity in strategies and tactics, clarity in scoreboards and game stats, and the discipline of crisp execution. They are showing an immediate and laudable success, even within this current business climate. You can get a right hot blaze from a dying ember, with the right effort, with the right actions.

What does it really take?

The “growth without end” climate of construction since the 1950’s is over. Two significant periods of downturn in five decades interrupted the constant growth curve but this third decline is deeper and recovery is predicted to last longer than ever. Just to stay in the game, never mind to experience real, lasting growth, you as a dealer will have to gain market share in ALL Products and Services associated with our industry. You won’t be able to just “wait it out.”

How do you gain market share? By being THE best dealer in your market. How do you do that? Do what Michigan Lumber is doing.

Get in The Game

The name of the game is Beat Last Year. Whatever the market conditions. Whatever the tried and true traditions of your organization. Whatever your competitors are doing, or not doing. The Game remains the same. There is only one game in sales, and that is Beat Last Year.

Driven by this bold challenge, a palpable enthusiasm emerges within your team. Passive business practices are replaced with active selling strategies to Beat Last Year. Long neglected Operational Processes are suddenly refined in order to Beat Last Year. Personnel who under-perform or act more like obstacles than assets face an option to improve or leave the team in order to Beat Last Year. The absolute clarity driven by the simple dictum of Beat Last Year is the most essential platform for attitude change. Immediate positive improvement occurs when everyone, to a person, is focused on one overarching reason to show up every day.

Michigan Lumber is not my only client who adopted the Beat Last Year dictum. That company simply holds The Game in the forefront all year long. Jay K Lumber in Utica, New York, and Mid Cape Home Center on Cape Cod in Massachusetts, have also adopted the call. “What’s the game?” I can ask any employee of these firms. “Beat Last Year,” is the immediate and genuine response. Cool. That’s cool because it’s working.

Choose Creativity over Tradition

Over the decades of its decline, Michigan Lumber avoided construction grade forest products and hard building materials. While maintaining their tried and true dedication to finish grade products, for which they always carried a wonderful reputation, they now proudly embrace any project from foundation to the front door key.

Additionally, Michigan Lumber has creatively restructured its partnership with Boise Cascade. Professional customers, who are loyal to Michigan Lumber, undertook jobs in distant regions of the country and were willing to try something new. In 2007, major projects in North Carolina, New Mexico, and Las Vegas, Nevada began receiving supplies by direct shipping from Boise Cascade. As part of the deal, Boise Cascade backhauls from Michigan Lumber their custom made materials from their mill work manufacturing division to remote construction sites. Weyerhaeuser and Blue Links (GP) shunned this kind of arrangement. Seems that even Boise Cascade has caught the spark to Beat Last Year!

Michigan Lumber Company pruned established products and service offerings. Broad in-stock inventories of ultra-custom rarely sold hardwood moldings are discontinued from stock, but remain available upon demand through their millwork shop. While retaining their traditional hardwood business, some of the more exotic species are being eliminated altogether. No sales are lost and inventory investments are decreased, improving turns and freeing capital for investment in new product lines.

Michigan Lumber also realigned their mill shop from a decades old pursuit of huge commercial casework projects to a new pursuit of smaller, quick turn, higher quality millwork, surfaced hardwoods, custom moldings and solid surface countertops. Olson said, “There are so many large manufacturing houses providing finish materials for the large commercial sector that we just couldn’t compete and be profitable.” I believe his view is correct and the strategic shift is solid. The mill shop takes pride in its magnificent custom mantles, elaborate built-ins, and spectacular in-home theatre rooms crafted from any lumber species imaginable with a keen sensitivity to the customer’s sense of style. By stepping away from an unprofitable endeavor and retooling, Michigan Lumber Company successfully distinguishes itself as a quality oriented dealer able to provide unique items to a discriminating customer’s request, and is more nimble to boot.

Another exciting new initiative is the pursuit of pole barns and other agricultural buildings. By anyone’s guess (we did have to guess), Michigan Lumber Company did not sell more than one or two agricultural building projects over the last decade before this past summer. These packages were avoided for so long due to the fear of low margins, but are actually proving to be quite profitable after all. Framing materials and hardware packages come from stocked inventory and roofing and engineered wood products are entirely special order and drop shipped. Costs of handling are minimized by only one trip, one time to a specific job. Transportation and handling are included within the cost of drop shipped products. The projects are quick and easy. By December 31, 2007, the organization will have sold complete materials packages for 40 such projects. The 2008 goal is 100. This long avoided comprehensive agricultural sector may net over one million dollars in total volume for 2008. Break a tradition and bring a bundle of bucks to your door!

Furthermore, Michigan Lumber is stoked to target the equestrian sector within agricultural structures. Horse barns. Priding itself in high quality products of any sort, especially their own millwork, Michigan Lumber recognize in the equestrian community a similar appreciation for quality workmanship and beauty. This obvious alignment of values inspires the entire team to focus on this specialized facet of agricultural buildings. Now instead of entirely avoiding barns, everyone in this company from marketing to milling is suddenly afire to market a niche product.

All these steps took courage. This small dealer in Flint is making strategic shifts for a new age in our industry, breaking traditional market limitations, creating new product alignments and service sets, and keeping step with the current radical shifts in our industry. Michigan Lumber’s new glow in Flint is a beacon for all LBM dealers in America.

Set Scoreboards and Game Stats

Scoreboards foster personal and team investment in performance. Michigan Lumber committed to clearly understandable performance statistics, and quickly established them before the beginning of the 2007 fiscal year. The P/L was reworked to allow for succinct analysis. A budget was built from the “bottom up” with profitability in mind. Individual sales goals for all sales staff were established. Gross margin targets were put into place. Sales staff “score cards” were designed and made available to all staff to see daily. Now, both sales and operations constantly hover over the daily, monthly, and year to date performances and everyone cheers great results. The rare occasion of poor performance is immediately met with team-wide disappointment and with individual determination to not perform poorly again. Everyone is in the GAME.

While setting performance goals and reporting processes, Michigan Lumber discerned a distinction of relative importance. “Scoreboards” reflect terminal results at the end of the game. “Game stats” reflect over a timeline, and measure frequency and quality of the actions that create changes in the scoreboards. Scores are important. However, the game stats, the measurements of ongoing actions creating the changing scores, are actually more important. Michigan Lumber has many such game stats in place now, with additional truly important measurements specified into the business plan for 2008.

Without a single exception, each and every time I assess a dealer, I find very few if any visible “scoreboards” and absolutely NO “game stats” in use. If any critical comparisons are in place, they are entirely ignored, collecting dust in a file somewhere, and avoided with trepidation. Why keep any measurements if you can’t read them and don’t use them? If you don’t keep and use the numbers, you might lose your shirt without a clue why. If you don’t keep and use the numbers, you might, by chance, Beat Last Year. Accidental success - Luck - is NOT sustainable.

Develop comparative reports, and use them as strategic and tactical tools. Comparative reports are simple: Anything This Year compared to The Same Thing Last Year. Numbers can be used to foster a sense of achievement with the players. If you use the numbers, you can engage your team to Beat Last Year. It’s that simple. You can play the game by chance, or you can play The Game with intention. Keep the stats to Beat Last Year.

Michigan Lumber Company is tracking their game. Now that they witness unprecedented growth in sales and profits, the team’s enthusiasm attracts new sales talent, new customers and vendors who share the excitement. Smiles and laughter abound. Permeated with optimism, Michigan Lumber Company is a fun place to be. “Customers come in and see so many people having a great time they want to come back,” says Olson. “Vendors just don’t know what to think when they come from another dealer all down in the dumps and sad about how horrible business is. Then, when they see us and feel the optimism, and see the staff focused and truly playing to Beat Last Year, they are mystified. They wonder what we have been drinking.” Haan is astounded at the sales gains. “I would have been pleased with a 10% gain. We are blowing that out of the water! What a sense of achievement for every employee!”

So much has been accomplished in a very short time because everyone is in The Game with unbridled enthusiasm for excellence. The newly recruited buyer not only recruits new vendor relationships, he puts them in writing and formally evaluates vendor performance on a set schedule. He also established a marketing plan where there was none, and executes it with discipline. Account managers have new professional work spaces. Employees have new stunning uniforms. I love their new logo. The store has been re-merchandised. Delivery processes are codified and constantly refined to keep pace with the already occurring geometric growth. Vendors sponsor monthly on-site customer appreciation cookouts. Phew! All in a year!

Amp up Your Game

Despite the laudable achievements through the last year, Michigan Lumber is not immune to the continuing economic shifts in the Great Lakes states and the national marketplace. These factors have profound effect on all dealers and pose continued challenges to any small business. As professional customers reset their cash management practices to meet the current business climate, Michigan Lumber will need to improve A/R management. Do your A/R policies need work? They will need to accelerate inventory refinement in 2008, with the strategic determination to “invigorate or eliminate” the bottom producing 25% of products, freeing up cash for reinvestment in top producing categories. Are you refining your inventory with a vengeance? They will need to develop a banking partnership with growth in mind. Is your banking relationship right for growth? They will need to recruit more talent to stay on the growth curve for the foreseeable future. Are you boldly recruiting bright talent each and every day? Speaking of talent, nationwide, the question of succession looms in the LBM dealers’ minds, as executives and the entire workforce continue to age, and as fewer young adults choose the independent LBM sector for their careers. Michigan Lumber Company will need to set up succession planning. So will you.

A particular and significant challenge for Michigan Lumber is the intentional development of the total executive skill set to navigate future business challenges. Many third and fourth generation owner/operators in our industry need a new mindset. These people were children while business was created from scratch by entrepreneurial efforts, and the inheriting family members were neither inclined nor encouraged to re-create a business model. They were trained from early years to steward the existing business and follow grand dad’s rules, not to question, not to break tradition. They heard ever and again, “If it ain’t broke, don’t fix it.” Unfortunately, they never heard grand dad’s greater rule, “If it is broken and ain’t working, fix it or burn it and start over.”

The folks at Michigan Lumber have adopted a new mind set. “The last year with Wilbanks has been like a PhD in LBM Executive Attitude and Action, but the whole program all crammed into a few months,” Olson has exclaimed often in recent weeks. “It is no wonder that we were in decline, and I can see that we were in decline longer than I thought. I can see that, had I asked for coaching a decade ago, had I put new principles in place then, we would never have experienced such decline. But to ask for help, to invite a consultant or coach to lead you to new understanding and skills is typically discouraged in our industry. That mindset was just wrong.”

While I hold faith that an old woodpecker can learn new tricks, the task is monumental: to become teachable, remain teachable, to kill sacred cows, to risk angering Grand Dad’s ghost by Thinking Something Different, by DOING something different to yield radically different results. The courage to be deeply teachable is really tough for LBM executives. We are such an independent lot. Olson has grown tremendously this year in his ability to sustain hope, to communicate with his team, to act with precision instead of hesitation, all facilitated by his willingness to be teachable. His whole staff mirrors his growth. I am damned proud of him and his staff.

The Endgame

What remains for Michigan Lumber, or for any LBM dealer anywhere, is to determine whether to stay in the game or to sing it’s swan song. At this point, Michigan Lumber is still in The Game, and their game is good. Even with amazing good effort and results in recent play, business is tough. The Game is tough. At any point, rather than resetting sufficiently and quickly enough for adequate revival in a dangerous business climate, dealers may rightly opt out of The Game. But that’s another topic (see “Don’t Toss in The Towel” at www.kenwilbanks.com).

Call to Action

Growth is possible even in the face of a construction downturn. Michigan Lumber Company is presently burning brightly in the worst economic climate in America. If your economic climate is somewhat warmer, what will it take to put you on a growth track? Pursue excellence! Dealers doubt me when I insist that the intense pursuit of excellence will always yield results far beyond the average market performance. Yet, it is true. True in any endeavor. Sports. Academics. The refinement of any art whether music, painting, sculpture, dance, or the stage. When we set our sights on excellence and back up that vision with measured practice, responsive coaching, and indomitable attitude, then we achieve excellence.

I double dog dare you. Get in The Game. Do you need a jump start or a swift kick in the pants? Are you entering 2008 with a written action plan leading to growth? Are you keeping scoreboards and game stats? Are you adept with these important tools? Are you surgically reviving or removing non-producing product categories, dusty, dying and dead SKU’s with apt and timely precision? Do you believe, really believe to your very core, that you can Beat Last Year? Get in the game with winning in mind, or Someone is Going to Come and Get You, one product line, one customer, one team member at a time. That’s the nature of a game. Someone wins and someone loses. Are you in the game? Are you willing to lose? Are you willing to do what it takes to win? I challenge you to Beat Last Year!