I just had dinner with a customer who was eager to talk about the state of the economy. “What is happening to business?” he asked. “I have not seen it this slow in some time! What is going on? We need to discuss the state of the economy and what I need to do to survive in these changing market conditions,” he said.

“What is going on is interest rates,” I replied. The new construction market has taken a sharp—I mean sharp—downturn. (Check out: Homebuilders Say They are on the Edge.)

“There’s this cliff that’s happening in January,” said Gene Myers, chairperson of Thrive Home Builders in Denver, which was one of the hottest markets in the years leading up to and through the COVID-19 pandemic. “U.S. homebuilders were a major beneficiary of the ‘Covid economy.’ Record low interest rates, combined with surging demand from consumers looking for more living space, caused a run on housing unlike most had ever seen before. Home prices surged over 40% in just two years, and homebuilders couldn’t meet the orders fast enough. They even slowed sales just to keep pace. All of that is over,” said Myers.

Well okay, so there is a lull in the action. Calm down. Don’t panic. There are three things to keep in in mind:

Number one: Don’t let good people go! Your hard workers are one of your most treasured assets. Now is not the time to panic and lay off good workers. It will take ten times the effort to hire good people when business picks up. Sure, it’s a good time to let the poor producers go but hold on to the good ones for dear life. It is incredibly short sighted to lay off people when just a year ago we were going crazy trying to find enough workers to man the saws, welders and insulating glass (IG) lines. It is incredibly important to think long term and to not focus on the short term. I have seen some major companies panic during short lived down turns. They laid off people without realizing how hard it would be to re-staff once business came back. When business picked up, they were short staffed and could not respond to demand. It cost them customers and their market share declined.

Number two: Beef up your sales programs. Many companies are now putting hiring freezes into effect. This is understandable, except sales talent is not an area where you want to cut back. Many companies tend to trim budgets based upon current revenues they are seeing. When revenues are declining, sales and marketing departments should be viewed as two areas that should be funded more not less. Sales training is also crucial. Marketing and sales training budgets should not be cut in response to declining revenues. If anything, it should be the other way around. During the last few years of incredible demand, many salespeople have been told to stand down. I have in fact heard of many who were told to question their customers’ orders to make sure they were not panic buying. Remember this is not in a salesperson’s DNA. It’s like telling your hunting dog to let the bunny go. Well, now it’s time to chase the bunny! This means investing in sales training, conducting sales meetings, rolling out new products, new literature, sales tools, sales contests and motivational programs. Do not hold back! Fuel the fire!

Number three: Re-evaluate your vendors and business partners. During the last few years of insane demand, many fabricators were let down by their vendors and business partners. Backorders were accumulating because components were delayed. Fabricators who were single sourced oftentimes suffered the worst. Many fabricators were so caught up in the heat of the battle trying to fill orders that they could not even afford the time to evaluate or qualify alternative raw material or component suppliers. They were left waiting on delayed shipments and the result was an insane level of backorders and missed shipment dates. Now that things are slowing down, it is time to qualify secondary or even tertiary sources and to look at lower cost alternatives that may help to control rising component costs.

So yes, we are seeing a slowdown. But don’t panic. Think of it as a good thing. It is time to catch your breath. Yes, it is time to re-evaluate your staffing, sharpen your sales talent and strengthen your supply chain.

Prepare for the next surge!

2 Comments

  1. I suggest my friend Jim Plavecsky does not appreciate the role cash flow; in this case lack thereof in a downturn, plays in management decisions in a down turn.

  2. Brian I do understand the role of cash flow. I have many customers who struggle with this issue especially during the winter months. I still believe that it is a huge mistake to shrink marketing budgets when sales revenue is down. Marketing drives sales and not vice versa. That is why it is also crucial for companies to maintain a good line of credit.

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