The Ripple Effect

Nov. 1, 2007
Although the current construction market varies by region or perhaps more accurately, by city and by neighborhood for the most part a recent visit to

Although the current construction market varies by region — or perhaps more accurately, by city and by neighborhood — for the most part a recent visit to Baltimore was a good illustration that in many places housing construction has just about completely stopped. As Marty Underwood of Proline Rentals in Baltimore's Reissertown neighborhood says, it was as if somebody just turned off the tap. For rental companies oriented towards light contractors, that's a pretty serious chunk of business. In addition to housing construction, so many of those contractors work on small strip malls, small renovations, taking out a kitchen and putting in a new one, expanding the showroom of a small retail store, building an addition on to an office or residence, so many small jobs.

With credit being tight, for a lot of people, home or office improvement and a lot of other small jobs will wait and people will be likely to just want to sit on their cash for a while.

All right, I hear you, spreading doom and gloom makes people pessimistic. Well, these are not doom and gloom times and most of my contacts with rental people around North America convince me there's still a lot of work in lots of markets. But this is the time for careful management because booming business is probably not going to drive you. Caution doesn't mean don't expand — ABC Rental Center in Baltimore opened a branch a year ago and it's doing well, adding growth at a time when growth doesn't come easy. Obviously plans for that location were well underway before the housing slowdown became a reality, but some companies start planting the seeds of expansion while business is slower.

A lot of business experts will tell you slowdowns are the best times to expand, that market share ratios typically change during slumps or spikes but not so much during steady times. Sometimes bold moves are the perfect strategy, but obviously there are risks. And it's all very good to quote business experts and say, “expand, grow, spend,” but for many those resources aren't there or can't be spared.

But you don't have to be rich to utilize your software intelligently, and you don't have to be a cyber genius either. Proline's Underwood simply paid closer attention to what he already had available, the ROI reports that told him which equipment was bringing in an acceptable return and which didn't justify the investment. It's a simple thing to analyze and these days most people have the software. It finally came down to choosing equipment that made money rather than equipment he “liked” or that the company had for a long time. Maybe it worked in 2004 but if it isn't moving in 2007, then find the best means of disposal and rid your shelf and yard of it.

A lot of rental companies take advantage of slower business cycles to improve their businesses. A rental owner once told me how he would sit down to make a list of things he wanted to improve and find it overwhelming because there were too many things. So he'd decide on one — whether it be an ROI analysis, or steps to improve appearance of the showroom or yard, or improvement of accounts receivable systems or telephone systems, phone answering etiquette, driver safety, sales training, a website — the list can go on and on. But he would, periodically, just choose one to really focus on. He found that by improving that one area, there would be a ripple effect that would benefit other aspects of the rental business as well.

It reminds me in a way of one of my experiences as a father and probably some can relate. As you know, when you suddenly have a baby or two, there's not much free time around the house. If I had a couple of hours of free time, I'd spend the first 20 minutes running around the house in a frenzy thinking of all the things I wanted to do. Once I calmed down to enjoy the moment and focus on one thing, I'd get something done. In a way, running a business is the same. Find an area of focus and work on it, accomplish an achievement and grow with it and then go on to something new.

I don't know if the ripple effect will always work, but it might be worth a shot. As for the housing slowdown, as the Baltimore guys say, it's definitely real. How long will it last? That's an issue we'll take a look at in the coming months.