Draw Your Inspiration from Nimble, Independent Dealers, Not LBM's Elephants

Imagine you are CEO of a 7,000-person company. The pressure you feel every quarter to hit EBITDA goals gets compounded during Q4, the annual budget-setting season. Your top customers, publicly held tract builders, lie or are at least intentionally overly optimistic with their 2024 sales projections to ensure you commit to more capacity than the builders will actually sell. At the same time, aligning 550 location leaders across 100 markets and 10 regions makes for challenging communications. Remember playing the telephone game as a kid?

No one should be surprised when LBM Dealer Elephants move in a highly predictable direction. Executive leaders at companies like Builders FirstSource and US LBM are giving their charges the same message: "We are projecting 2024 sales to decline 20%. Lower your prices/margins as needed to capture sales, but you must hit a 10% EBITDA increase budget target, which we have set for you."

The regional VP responds: "So you want me to fire 33% of my team and make the remaining people work 80 hours a week to produce the same profits?" the executive responds:" Yes." If hitting the numbers requires firing 20% of a sales team—successful salespeople on 100% commission compensation plans—"Well, we have to make the budget cuts," the exec replies.

Running a $5B-7B company demands simple directions and nuance-free communication. The problem is that keeping things simple overlooks differences between markets and the developmental needs of the people within those markets. The increased pressure creates more opportunities for mid-level leaders to make major leadership mistakes. The missteps center around an overly simplistic message in the hands of a leader who cannot "lead upstream" to gain the resources and attention needed to support business. Nuisance and flexibility around what is a logical decision to anyone else becomes a lost opportunity. How long does growing a capable OSR or millwork, windows, and inside sales specialist take? Three years, minimum. Talented people remain any company's most significant resource, yet LBM's elephants routinely choose short-term profits over people and centralized command and control over engagement.

Smaller Dealers, Better Ways

Across the country, we're seeing intelligent, independent LBM dealers ready to take advantage of the elephant's missteps. Here, paraphrasing their words, is what presidents at those companies are telling us:

Oklahoma: It is about the people. We are increasing our budget-planning process to include more people so they can have a seat at the strategy table. Yard supervisors, dispatchers, and inside sales leaders this year are all included. Their full view of the P&L increases enthusiasm for embracing our challenges and goals for 2024.

Florida: We have launched a continuous improvement program, and I am amazed at the ingenuity, innovation, and creativity of our hourly workforce in coming forward with excellent, often inexpensive solutions. They are solving large problems and bottlenecks. It is early, but we project the changes will drop 300 basis points to our bottom line in 2024.

Kansas: Since opening our first wall panel and truss plant seven months ago, we have booked $20 million worth of truss and wall sales for 2024. Our multifamily and single-family builders are giving us so much support we are planning to open a second plant.

California: My organizational structure had too many direct reports to our mid-level leaders. It was hurting our succession planning for retirements in the near future. What's worse, it's limiting our career-pathing opportunities for growth for the high performers. We have lost solid talent in the past. Our mid-level leaders now have the time and resource to train and develop people and are more engaged leading the recruiting efforts for their divisions.

Pennsylvania: Over the past few years, our purchasing team did a fine job navigating a tough commodity market. Rail transportation was not to be trusted and we shifted to rely on common carriers. We have been slow to pivot since. We have a 12-car rail spur that is virtually unused. We are now focused on reviewing our purchasing strategy, adapting to 2024 with an open mind and with a team capable of collecting market information from a broader range of suppliers. We plan to leverage mark-to-market purchases with contract buys from the mills, brokered deals, and local two-step deals. We will even buy from our LBM dealer competitors when they have overbought. We now respect the competitive advantage of managing information flow from seven different areas and multiple providers in each area to source material from. I expect a 200 basis point impact from this initiative. Our CFO thinks it could be closer to 300 basis points.

Ohio: We are building and growing our team. The pent-up housing demand in our market is immense and getting bigger as job growth is steadily increasing. From my view, once the Fed starts dropping interest rates, this housing market will take off and we need to be ready. It takes a lot longer than three or six months to recruit and develop solid teams in our locations. We have a good balance sheet, our bankers and our family board agree, and we are focused on building for a robust Q3-Q4 in 2024. It's an election year, so of course the housing market will be higher at the end of 2024. Our plan is simple: Make sure we have happy, engaged people who are excited to compete and collaborate to smooth our sales and operating systems to take more share from our competitors.

My Top 5 Takeaways:

- As leaders, acquiring and allocating resources is your Number 1 objective.

- Focus on the people, and the profits will follow.

- Don't get sucked into macroeconomics. The unrealized profits inside your business are rich.

- Concentrate on your strategic goals. You likely will have to give up some lower-valued day-to-day responsibilities to create the time.

- More seats at the budget planning table increases engagement.

Hire Smarter™ -- Tony Misura