
With “National Shed Week” in the history books (that is, the week of the National Shed Rental Association conference and the Shed Builder Expo) we are all back now to running our companies.
The broad consensus seems to be that the industry as a whole has hit a soft patch. Without a doubt, the tailwinds of the past several years have subsided; and specifically in some market areas, we are facing significant headwinds.
Doing the same things you’ve been doing in the past several years will likely be getting you fewer results.
All businesses have cycles. These cycles typically range from five to 10 years though they can vary greatly in length.
I well recall, over the past 50 years in the shed industry, times that were particularly challenging due to soft market conditions and others that were challenging due to demand that pressed us beyond our capacity.
The stages of business cycles are commonly labeled into four distinct phases:
- Expansion—Economic growth and increased demand, resulting in business investment.
- Peak—Growth reaches a peak in the cycle, and growth rates slow down.
- Contraction—Economic decline leads to reduced demand, resulting in cutbacks in business.
- Trough—The lowest point in the cycle, often followed by recovery leading to expansion.
While I wouldn’t want to put exact timelines to the economic cycles in the shed industry, it’s quite clear that the COVID-related shutdowns resulted in a significant period of expansion.
We are likely in a contraction period and hopefully nearing the trough. Various recent economic reports indicate a significant slowdown in larger-ticket purchases in most regions of the country.
While I don’t have good data to support this, I do recall frequently experiencing market softness during the presidential election seasons as well. That seems to be true this round, potentially hitting us with a double blow: contraction following the COVID-era surge coupled with election-cycle caution.
All this is to say, the macro environment for the shed industry has faced some headwinds.
This is not, however, the experience for all companies in the industry, which brings me to three important questions to ask when you are facing these kinds of market conditions. How you answer them and how you respond to your insights may well be a significant determining factor in how you emerge from the current market.
Will you merely ride the wave down, or will you manage to get on a surfboard and use the receding wave to position you for the almost certain expansion that will follow?
How does a leader address these types of market conditions? I suggest you consider at least the following three questions, highlighting three areas of business: strategy, people, and focus.
STRATEGY
Let’s start with the question of strategy. Multiple strategies are employed in the shed industry. Each strategy has its particular advantages and disadvantages and as such is impacted in different ways in the midst of these business cycles.
Companies that have control of the entire process from manufacturing to sales, distribution, rent-to-own/finance, and service have the greatest number of tools in their bags to respond to a market contraction.
Companies that focus on only one aspect of the business are left with far fewer tools. They are impacted not only by market conditions but also by the response (or lack of response) by others in their business network.
One area where I see the biggest impact is in the dealer model, where manufacturers are dependent on dealers to sell in the increasingly competitive environment. Some of these are seeing significant challenges, as they have no established plan to expand marketing efforts and capture increased market share.
Examples of other business models could be used as well. Assess your particular strategy and honestly ask yourself whether your business model may be particularly vulnerable in these market conditions. Understand what the tools are in your hands to address those areas of vulnerability and get creative about ways you might use those tools to drive revenue and profitability even in a period of contraction.
PEOPLE
Second, be candid in assessing the people in your company.
I know this can be a sensitive question, as none of us loves the idea of laying off people. In most business models, however, people are one of the largest investments of business capital, and we must be attentive to the return on investment for our labor force.
If you are in a situation with declining revenue, you will likely be forced to make some difficult “people decisions.” Jack Welch, during his tenure at General Electric, used a ranking system for his employees. He would annually rank all employees into three categories: the top 20 percent, the middle 70 percent, and the bottom 10 percent. He was committed to letting the bottom 10 percent go to improve overall performance and make room for new talent.
Whatever your method is, you must pay attention to how people are performing and what you will do to address both underperformance and overstaffing.
Seasons of contraction often force this issue, as it’s either let a few people go or place the whole company at risk. You must always work for the greater good of the company itself as everyone’s livelihood is at stake.
A company that is anticipating a 20 percent decline in revenue year over year needs to make the appropriate people adjustments. While there may be a few rare exceptions, this is the normative rule. Delaying these hard decisions will cost you dearly.
FOCUS
The third question is also a bit of a strategy question but zeroes in specifically on refocusing on all aspects of the business. In times of business expansion, we tend to get “fat and happy.” We add products to our line, get sloppy in our processes, and don’t pay adequate attention to expense creep.
Expansion is an important time to refocus on every aspect of business. If you are manufacturing, are you running lean and efficient? Manufacturing labor costs can creep up when the volume of work is light, as we find ways to fill the time with less productivity per man-hour invested.
Clean up your old materials inventory and dump old parts through Facebook Marketplace.
Reduce the levels of inventory to free up some cash and be sure to adjust inventory levels to any reduced manufacturing flow.
If you are on the sales and marketing side, pay attention to what is working to drive incoming leads and where your best return is for your advertising dollars. Stop doing the underperforming things and spend more money on what is working.
Back in the 2008 downturn, I well recall cutting almost all advertising—we had no real way to track the effectiveness of anything. We then restarted by only doing what could be measured and evaluated.
Review that sales process and get more alert to what’s working and what’s not. Refine both your marketing message and sales process.
It’s also possible that you’ve become distracted from what you are really good at. You may have added too many different products to your retail space, and your sales reps are no longer truly experts at your core products.
When we did a deep dive into our sales numbers using the 80/20 rule, we discovered that 80 percent of our revenue was actually coming from 20 percent of our products.
This is not uncommon. We did a radical reduction of the product lines we were offering and refocused on selling more of our core products.
This allows a drastic reduction in marketing budgets as you refocus on core products. It can result in significantly higher returns on your marketing investment.
Be ruthless in asking the question, “Where might we have lost focus?” and then follow through on refocusing and executing with clarity.
Even in this economically soft season, there are companies that are expanding and growing. They are capturing more market share by focusing on these three critical questions and executing with clarity and consistency. Why not be a part of this crowd?