Get a New Map

In my January column, I called 2009 the year of the “perfect storm.” The economy is sluggish, credit markets are stalled and consumer confidence is at an all-time low – all three combined create an atmosphere of chaos our generation has never seen.
The good news is that it appears that we were spot on. The bad news is that it appears that we were spot on.
I’m concerned with analyzing data at both the “micro” and “macro” levels. The micro level primarily deals with the analysis of data within a green industry company, while the macro level mostly reviews and analyzes data at the industry or national level. Both forms of analysis yield patterns and trends that the analyst attempts to understand and then project into the future. Unfortunately, there is too little of this kind of activity being done within our industry.
In normal years (even in normal recession years), a company could project into the future with a reasonable amount of confidence. The process looks at data from the past, identifies trends and patterns and then projects those trends and patterns into the future as they impact future revenue, costs and profit margins. In the current economic market, one thing we have learned is that you can throw out just about everything that we have learned about the green industry in the past 25 years.

ANALYSIS. In my September 2008 column, we discussed in great detail the process of doing a mid-year review of your business. This mid-year review process is invaluable for the contractor who wants to be on top of his or her game. And it’s not just for large companies. Smaller green industry companies – any company, really – can benefit considerably from doing a mid-year review as well.

All smart coaches evaluate their team’s performance during a game’s half-time. The mid-year review not only helps us to evaluate how you did during the first half of the year, but it also helps you to address three very important financial objectives – two for the current year and one for the upcoming year. The first two are the company break-even point and the revenue goal(s) for the current year. The last one is a preliminary budget for 2010.
I’d recommend you implement the mid-year review process this year as well.

THE PROBLEM. However, we have a problem with the mid-year review process. Namely, the data that we have to analyze (at the micro level) do not address our most pressing problem. That problem is at the macro level. Like Christopher Columbus in 1492, our ship may be ship-shape, but we’re not quite sure where we are headed. We have little or no accurate historic data (a road map) to help us to project into the future. Columbus thought he was on his way to India, not the New World. The New World just happened to get in the way during the journey. The maps (historic data) that he had were of little value in the unchartered seas upon which he and his crews sailed.
The current economic situation is essentially unprecedented. On top of this, I think it fair to say that we have one of the most inexperienced and unproven teams ever assembled to deal with such a unique situation.

While most service and maintenance companies around the country are holding their own this year, installation companies are taking a real beating. Installation sales are down at least 30 to 50 percent in most cases. The prospects for turning this trend around this year are virtually non-existent. Worse yet, the prospects of this trend continuing next year appears, at this time, more likely than not.

RECOMMENDATIONS. First, I’d recommend that you review chapter four of Jim Collin’s must-read book, Good to Great. As he states, it’s time to “Confront the Brutal Facts (Yet Never Lose Faith).”
Second, I’d recommend that you conduct a mid-year review of your company, its 2009 budget, your actual costs to date and your break-even point. Lastly, I’d suggest you start to think about where you’re headed and where you’re going to be in 2010. We’re in the midst of an economic perfect storm, and it’s critical that we keep our ship seaworthy and headed in the right direction.