Building contractors should hone customer base

One of my recent clients is a building contractor who has worked in the Flathead Valley for more than 25 years. He's had great success, considers himself a quality builder of custom homes, remodels, decks, you name it. Yet recently, his business has tapered off and he called to discuss what he might do to get some business.Of course with the current mortgage crisis, which some economists feel could lead into a recession, it's old news that housing starts and construction have taken a hit. Yet there are some bright spots in the market such as commercial starts and some high-end development. Actually, Montana is doing better than other areas of the country, but will the housing finance crisis effect Montana? Would one be foolish to start a spec house anytime soon?

To state what may be painfully obvious, the home-mortgage crisis is the result of people taking out mortgages with payments beyond their means, thinking that the appreciation of their property would allow them to sell, for a profit, should they need to. As demand and home prices plummeted, many were left with homes worth less than their payments. This in turn led to the crisis in financial markets in a snowball effect that started with mortgage companies, their creditors - banks, financial institutions and equity lenders, issuers of bonds and then the very insurance companies that backed these bonds, pension funds and government entities and nonprofits that held these bonds. The ramifications haven't run out yet.

,This crisis at last count was affecting fully 10 percent of home-mortgage borrowers. However, this fiasco has not been uniform in its impacts across our country. In Montana, Idaho and other western states, the impacts are far less than in California and Florida. According to the Office of Federal Housing Enterprise Oversight, while California and Florida showed a housing value loss of -6.6 percent (as high as -19 percent in Stockton) and -4.7 percent respectively, Utah gained 9.3 percent and Montana had a gain of 6.9 percent. Clearly, as during past home-price declines, such as the late 1970s and early 1980s, happened in other parts of the country, its ripple effects impacted home prices across the Rocky Mountain region. This was the result of the oil embargo and high gasoline prices. These same pressures exist today.

THE BIG question, of course, is how is the Rocky Mountain West going to fare during the current crisis? With this backdrop of economic uncertainty, those in the housing construction industry are proceeding with caution. Is there opportunity within this context?

According to the U.S. Department of Commerce, light commercial construction is expected to increase nationally by the high single digits, 8 to 9 percent in 2008. While this is below last year's 15 percent increase, it still shows positive revenue opportunities. In fact, while even Home Depot reports record low profits due to home construction declines, Stock Building Supply has shifted its resources into commercial hardware and door installations.

As a consultant and mentor, it's difficult to predict to a construction industry client what the best moves might be in such an environment. We've seen real market recessions in other industries, such as the layoffs of marketing and internet-technology professionals during the dot.com bubble burst. In a market collapse, real financial pain is a distinct possibility.

As always, sound business fundamentals, in place prior to an economic downturn or economic crisis, will benefit any business. If your business fundamentals need some fine-tuning, now is the time to do it.

Even large companies with excellent resources and personnel can stumble in these assessments. This is often due to their weighting financial, marketing or production factors without taking into consideration the holistic nature of their company or a longer range look at their industry and overall global economy.

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LET'S TAKE a brief look at each of these areas. Financially, if cash flow is in question, then immediate steps must be taken to cut costs, arrange financing, or refocus marketing efforts.

Marketing decisions should include new opportunities or higher profit markets with growth potential, such as the commercial building opportunities mentioned above. Throwing marketing dollars at a contracting market might be a waste of resources. Instead, take those marketing dollars and invest in new technologies and market trends.

Sustainable homes are in the spotlight. The integrated, interconnected home and green-building practices were two prominent areas of interest at this year's International Builders Show in Orlando. Moving into these technologies might put you in a better competitive position. Are people in your market asking about sustainable building technologies? Do you have the answers?

Lastly, this may be a good excuse to let go under-performing employees and to acquire performers from your competitors who may be floundering.

In good times and bad, every business owner must know the ins and outs of his or her industry by reading trade journals, going to conventions, trade shows and educational seminars to expand industry knowledge. In today's global economy, this means knowing what's going on in China, India, Canada and worldwide. Pitfalls and opportunities abound.

I ASKED the above inquiring client a number of questions about his business and determined it was localized to one area of the Flathead Valley,

Valley, namely Lakeside, which is a small, though very upscale community. Much of his client base is second home owners, some are snowbirds. Yet since he had started years ago when many of his customers were full-time residents, quite a few still lived either in the community where he had worked or had moved to other communities in the valley. Essentially, many are still local residents. Some have started families, or had children in middle and high school; some have kids in college. While his client base had changed, his way of doing business, depending mostly on referrals or working through architects he'd worked with in the past, had not changed.

We recommended mining his old client base by writing a letter or creating a newsletter letting his clients know of notable things his company had done over the past several years. Perhaps some of these former clients might be looking to remodel or to build new houses as their family configuration changed. It wasn't too late to start networking with more architects and former clients through civic organizations, sponsorships and contributions to local charities.

We live in a rapidly changing world where construction rates in Asia affect the price of 2 x 4s in Montana. Keeping on top of your industry, remaining flexible to new technologies and having a global awareness at the world economy have become necessities for the health of all businesses.

For free help with your business contact your local SCORE office where knowledgeable former business executives will share their knowledge of business processes and fundamentals.

Stephen Horowitz is a marketing and business consultant with a home in Whitefish. He currntly lives in Ketchum, Idaho, and can be reached by e-mail at havecamwilltravel.gmail.com