It’s very hard to say how big the effects will be or how long they will last. That’s going to depend of course on how widely the virus spreads, which is something that is highly uncertain and I would say, in fact, unknowable.Federal Reserve Chairman Jerome Powell
As we take the time to reflect on the past year, and simultaneously attempt to predict the challenges of the coming year, we begin to mentally paint a picture of changing tides, new supply chains and suppliers, and an industry in flux. Our typical partners for product and material have dried up inventory, doors to home improvement stores are closing to the public and contractors alike, and lead times threaten to throw projects completely off course.
In the midst of these projections and less-than-desirable news, construction companies are learning how to remain agile in uncertainty, flexible amidst change, and open to compromise that they were never willing to entertain in the past, both good and bad. Traditional practices of the past, including maximizing debt and overly long credit terms, for example, are proving ineffective in our newly evolving market, threatening to throw behemoths in the trade completely off-track or even into bankruptcy. The small businesses we see in Chevy vans driving the highway, advertising mom-and-pop plumbers and drywall hangers, are parked in driveways, their fill of work the past year a pipe dream for 2020. And through all of this change, we ask ourselves, “what’s next?”
What’s surprising in economic uncertainty is how our clients needs change and adjust to the changing times. Our expectation during this pandemic was a completely dry sales funnel, no opportunity for work, and no materials to complete what little work we were able to bring in. What we’ve found is quite a bit different.
- Homeowners are asking for work and are just as urgent as before
- Our homeowners understand that product is unavailable and are willing to pay more for custom solutions
- Homeowners are still paying invoices, they’re simply taking a couple more days to do so
Our narrative to explain this dichotomy is that when times are tough, people begin to understand the value of their dollar – if they’re going to spend, it had better be worth the exchange. Instead of relying on cheap nicknacks or overnight home improvement deliveries for finishings on a plethora of items, homeowners are choosing to pinch those pennies into the one project or one finish that they simply can’t live without. The rest can come later.
Along these same lines, remodeling has always had a tenuous relationship with the rest of the construction industry; when bank loans dry up or interest rates rise, causing many new build projects to fail or delay, families begin investing their dollars in what they already have instead of spending for more of what they don’t. This leads to a continual flow of work that is difficult for new home builders to adjust to, as the trade skills may be similar in some regard but the consultative and social skills required to work directly with homeowners often leaves something to be desired.
Within the remodeling industry itself, we’re already seeing a change in market conditions with regard to competition. Many businesses, especially those with under 5 employees, tend to live paycheck-to-paycheck, often through sub-contractor relationships because of the burden of hiring full-time employees. With the highest rates in the industry for workers’ compensation and general liability insurance, it’s often easier to push off liability on sub-contractors than to take personal liability for the work of your own employees. In fact, many of the business plans we’ve audited over the past year, in consideration for acquisition opportunities, demonstrate that it’s no longer possible to remain competitive with pricing in niche trades without taking this approach, de-incentivizing small businesses from offering employees benefits, longevity in the business, or the stability that corporate America enjoys. Homeowner appetites for increased cost has also been traditionally poor, which we look forward to seeing change in the coming year for those that can survive a recession like economy.
Our experience during these past few months has been scary but also encouraging. We’ve learned many lessons already and know that we will not only survive this economic downturn but thrive. Here are some of the lessons we’ve learned:
- If you run a healthy business in the good years, navigating uncertain times is about remaining disciplined in those skills, not forcing yourself to learn new habits
- The energy spent developing mutually-beneficial relationships and partnerships will be your lifeline – when big-box stores run low on product or you need a new perspective, these are the people you will inevitably turn to for help
- Temptation always exists to cut corners, more so in tough times – if you can’t take the high-ground during those times, you have very little chance of making it to the other side unscathed
- People are our greatest assets – when cash gets tight, spend your money on your people. They will be eternally grateful to you for putting them first and your clients will see the outcome
Navigating the tumult of news and predictions can be exhausting. But we find that when we take the time to reflect on our World and our industry, on lessons-learned or even on our failures, we often find little gems of insight that keep us growing toward the people we desire to eventually become. In business, this is no different. We take time to reflect on the past few months, the past few years, even, and find new ways to become better at what we do, knowing that our time is well spent and our clients receive even better service than before. Learn about how we are transparent with out clients https://vigeoconstruction.com/good-work-aint-cheap-and-cheap-work-aint-good/
In this era of constant-change, we encourage each of you to take the same time to reflect on your own lives, careers, and businesses, and to share those lessons with the World, so we can all become better together.
For more industry news about the housing industry, head over to https://www.nahb.org/News-and-Economics/Industry-News?q&sortBy=relevance&sortOrder=asc&page=1