© Pavlo Perets | Dreamstime.comYou can’t control the economy. But you can practice sound management strategies that will position your business to weather the storm.
Successful companies, in recessionary times or not, analyze macro- and micro- economics and appropriately define their place in the market. They look at meaningful big picture conditions – unemployment, housing, service growth sectors – and pay careful attention to “what’s happening in my town, on my turf,” says Judith Guido, president, Guido & Associates, Moorpark, Calif.
Honing in on one’s hometown economy is critical during times when the temptation is to regurgitate headline news and adopt strategies based on the generalized reports we hear so often – “the recession is over” or “housing starts will increase” or “unemployment is at an all-time low.”
“Winners look at the macro-economic indicators and use those as a slight barometer for their businesses, but they realize they have to really take that foundation and understand their individual micro-market dynamics and ask themselves: ‘How much of these big, macro-economics are really going to affect my geographic area?’” Guido emphasizes.
What type of landscape contractors are succeeding in today’s volatile market?
Fast responders. “The majority of landscapers are not managing their business, they are only responding to daily conditions,” she says. “Being in a constant reactive mode makes them vulnerable.”
Number-watchers. We’re talking about watching the numbers, at least weekly. Analyze them. Adjust them. Compare year-to-date performance with year’s past. If you need help reading financial statements, enlist in a CPA for a lesson.
Savvy networkers. Establish strategic alliances with industry peers. “The smaller you are, the more you’ve got to do, so if you have smart partnerships you may be able to share costs,” Guido notes.
Avid learners. Sales training, mechanical training, customer service training – every aspect of a business requires knowledge upgrades to stay on the cutting edge. “Understanding the science of sales and getting specific sales training can probably reduce costs easily somewhere in the 85- to 95-percentile,” Guido says.
Option providers. Customers want choices. And if they can’t afford Service A, they want a Service A1 or A3 that meets their needs. Give customers an opportunity to say yes by giving them service options. Implementing options might require a redesign of existing marketing materials and some sales retraining.
Investment advisers. Stop thinking of landscaping as a service and reframe sales conversations with clients. “The word ‘investment’ sets a whole new standard for our industry,” Guido says, suggesting that landscape contractors think of themselves as landscape investment advisers.
Defining Opportunities. Talk of “opportunities out there” means nothing without a plan. “If you are going to go beyond your strategic sphere or your geographic footprint, you better have a compelling reason to do so,” Guido says.
The fact is, only about 5 percent of companies create a business strategy, according to Guido’s independent research. The good news? Ten years ago when she first conducted this study, only 2 percent of respondents were in the planning camp. So as an industry, owners certainly are improving their business savvy.
According to our survey, just 55 percent of respondents receive monthly financial income statements.
Sure, crunching numbers isn’t natural for most landscapers, who founded their businesses on passion for the work. Guido proposes landscapers rework that foundation to address these pillars: organizational structure, process and people.
Ask yourself this: What are you managing to right now? Why do you provide the services that you offer? Who are your target customers, and what are they currently buying from you (if anything)?
Some contractors are shifting their businesses, increasing maintenance as an overall part of the business, or – bucking the “we’ll do it all” mindset that often accompanies a recession – deciding not to do business outside of their niche. One such company is Earthtones in Atlanta. Owner Chris Eckl has turned down $15,000 design/build referral jobs because he wants to stick to his strategy: building relationships with 52-week maintenance contract clients.
“If a contract customer has a $10,000 job they want done, we are all over that because we have the relationships, and we don’t want another landscaper doing work for our client,” he says. “But we are trying to stay away from third-party calls from customers who don’t really know what they want.
“That pulls us away from our core business, which is high-end maintenance contracts, and enhancements for those customers,” Eckl adds.
According to Lawn & Landscape’s survey, 41.4 percent of respondents reported growth in maintenance services for 2009, while 43.3 said maintenance was steady for 2009. Fifty-three percent expect to grow their maintenance divisions in 2010, while 39.1 percent who are planning for growth in design/build and 56.9 percent in lawn care (the most profitable service, according to Huston’s P&L examples).
Back to the profit-and-loss charts provided by Jim Huston of J.R. Huston Enterprises (see pages 5-6), landscape contractors should look at the cost benefit of growing services that could be high-risk.
Case in point: Eric Brand, owner, P & L Landscaping, Merrimack, N.H., lost half of his summer income because builders no longer need his “rake and spray” (grade and hydroseed) services on newly constructed properties. To recoup those dollars, Brand is focusing on maintenance enhancements on properties that are five-plus years old. What’s more, he runs one less crew and implemented a four-day workweek to adjust his operating budget.
This is just how Guido suggests implementing strategy: “If the market tells a company the best thing to do is be in commercial maintenance, the business should be organized and structured accordingly,” she relates.
Follow the Numbers. Numbers don’t lie. But we sometimes ignore what they say to us about how we’re really doing. Successful organizations don’t cut themselves slack when expenses are overboard and profits begin to dwindle.
Huston draws this example of just how much a company might adjust to be successful if 2010 is a repeat of 2009. “Let’s say your budget for next year is $2 million, and your worst-case is $1 million,” he says, setting up how “best” and “worst” budgeting can be accomplished.
In the worst case, you’ll buy less, require less labor and save on costs such as gasoline. “At $2 million, your overhead is about $500,000,” Huston says. “Half of that cost is people in the office. With $1 million net sales, you have to reduce your overhead from $500,000 to $250,000. That’s a drastic change.”
Next, look at the backlog. “If that doesn’t look good, you need to off-load overhead, primarily people, and you need to make some rapid change,” he says.
Those adjustments might include: selling equipment that isn’t in use and avoiding labor overtime. Every line item in the budget should be reviewed and tweaked to the “worst case” budget scenario. This isn’t a glass-half-empty view – it’s pragmatic and proactive. “Entrepreneurs tend to be optimists, thinking, ‘This will turn around in three months,’” Huston says.
Our survey underscores Huston’s remark. More than half (67.1 percent) of respondents expect revenue to increase in 2010 compared to 2009. Perhaps these optimistic respondents will see through their goal to increase or maintain revenues if they are sure to shed expenses if their numbers exceed the budget.
The author is a freelance writer based in Bay Village, Ohio.