BENCHMARKING YOUR BUSINESS: Backlog & Production

Last September I went on a fishing trip to Moosehead Lake, Maine, with two clients – Mark Pendergast and Dave Rykbost. Rykbost runs Dave’s Landscape, a full-service maintenance company near Boston. Pendergast’s firm, Salmon Falls Nursery (SFN), is a New England commercial and residential landscape construction company.

A few years ago, at $3 million in sales, Pendergast had double-digit net profit before taxes. Rykbost, at about half the sales, saw his net profit hit the low 20-percent range. Both companies have grown significantly and both have seen their bottom lines erode substantially.
 
There are five stages or growth plateaus as sales increase from $0 to $5 million. A contractor has to reinvent himself five times in order to hit $5 million, an extremely difficult process. Pendergast is struggling to reach the fifth level as he builds and trains his management team. Rykbost is struggling to get the pieces in place to transition into and through level four.
 
Pendergast has built an excellent management team and solid systems. Until last year, he didn’t even have a desk. Focused on checking jobs and future work, he’d rather run things from his truck. Rykbost has a good team and systems in place, but some of his managers are weak.
 
At dinner one day, I had Pendergast explain how he ran his company and which benchmarks he monitored.
 
“Backlog,” he blurted first. In other words, his crews have plenty of work and they are meeting budget for annual sales. “And production,” he added. Production means the crews are performing at a high level and meeting or beating the hours in the bid. One focuses on effectiveness: Are we reaching the “big” picture – our annual sales goal? The other addresses efficiency: Are we being efficient as we execute the “little” picture – individual jobs?
 
Backlog is measured by means of a Bid Board, which puts the big picture into perspective. It displays, on an MS Excel worksheet, all jobs and their status. It also reflects where we are in relation to the annual sales budget. The little picture is measured by job costing individual jobs, which tells how each is progressing or regressing. Since field-labor hours bid-to-actual comprise about 90 percent of the total risk in a company, our primary focus for job costing is hours bid compared to hours it takes to perform the work.
 
Pendergast has built a high-performance office and field teams. The office team and managers focus on sales and meeting budget. The field team focuses on executing the work as bid.
 
In a February 2005 Wall Street Journal editorial, Rich Karlgaard quotes Management Consultant Peter Drucker describing a CEO’s strategic focus. Drucker states: “Effective CEOs pick two tasks and devote their energies there. When those tasks are done, they don’t go to No. 3. They make a new list, pick the top two and start over again.”
Most CEOs do not maintain this strategic focus. Instead, they become absorbed in the daily minutia and fail to develop a team to oversee those tasks. Effective CEOs and owners understand the power of strategic focus. Otherwise, they create paralysis from too much analysis.

Smart CEOs in the green industry establish internal company benchmarks (sales and production) and relentlessly pursue them as they build a team to take care of the details.

Pendergast has done a  good job at this, but there have been adjustments as his team grows through the fifth stage. Our friend Rykbost is building a stronger team and trying to avoid getting wrapped up in things he should delegate. Both are making slow, but steady, progress.

The author is president of J.R. Huston Enterprises, a Denver, Colo.-based green industry consulting firm. Reach him at  800/451-5588, benchmarking@gie.net or via www.jrhuston.biz