It's been a long, hard year. many of us will not be sorry to turn over that last calendar page of 2007, in hopes that 2008 will offer better days. Unfortunately, we can't know what will happen this coming year any more than we knew how the current one would unfold. With the benefit of hindsight, we can see how naïve and hopeful we were at the start of 2007. In the pages of BUILDER, we acknowledged the seriousness of the downturn; we could see the signs of really tough times to come, but we believed that retooling your business plan, recrafting your product offerings, and streamlining your operations would keep things on an even keel for most companies.
That was before the crushing juggernaut of the subprime debacle flattened everything in its path, destroying the last vestiges of both consumer and builder confidence. In those first days of 2007, we could not see that by December we would be writing about previously wildly successful home building companies now just trying to hang on for dear life, with success for some currently being measured only by their ability to keep from declaring bankruptcy.
But seeing is indeed believing, and it's clear that we are in the midst of the worst housing recession to occur during the career of almost anyone in the business today. And the truth is, no one can accurately predict when it will end or how long it will continue its downward spiral. But it's also true for some companies that even in the face of cold, hard facts, sometimes the facts don't matter.
Or so it seems when listening to those in charge of the hardest-hit companies when they attempt to explain what went wrong. The recurring themes are: They didn't think it would last so long or be so bad. They thought they could work their way out of it; they were putting together some deals that would allow them to continue at a slightly reduced pace. They were sure that if they could just hang on until the market turned around, they would be all right.
Hope, as always, springs eternal, and optimism is a good thing. It helps us get out of bed in the morning, even in bad times, determined to do our best in all our strivings and gives us momentum when circumstances conspire to slow us down. But when optimism slides into denial, we get into trouble.
So, it's time for a reality check. If you haven't already gotten your company down to its optimal fighting weight and gotten a working strategy in place, what's it going to take to convince you that you need to take more aggressive action to weather the days ahead? Are statements like those of Wells Fargo CEO John Stumpf, who says the current housing decline is the worst since the Great Depression, not having enough of an effect? Waiting until you're unable to make payroll or until your vendors and subs start placing liens on your projects is way too late to start looking for cost savings.
In addition to the still-valid strategies I mentioned earlier—rethinking business plans, rejiggering product lines, and making operations as efficient as possible—smart builders have been working on their cash flow for quite some time. They've gotten rid of inventory and land, they've worked out financial plans with their lenders, and they've cut their overhead in a number of ways—including staff.
If you find yourself in the very enviable position of doing all right, even in this market, that's great. But don't bank on it continuing. If you are among those who are paying bills by writing checks from a line of credit or your personal account, get yourself in turnaround mode, pronto.
And if you're one of those who think you can just hang in there, consider the risk of doing nothing. As John Burns, a consultant who weighs in on the companies featured in this month's business story, “Rightsize Your Business” (see page 84), says, “The market could get better next year, but you're a real gambler if you run your business under the expectation that it will.”
Denise Dersin, Editor in Chief