Ulf Wolf / August 2016
Most of us were taken for a perilous ride between 2007 and 2012, and while many are still feeling some aftershocks from this recession—a diminished workforce, for one—for the most part it is behind us now and we can look back at it with a sense of having survived.
Reflecting on those years and the recovery that followed, and on how we managed to navigate those waters, I am sure that many of us drew some valuable lessons from the experience. Consequently, for this article, we posed only one question to contractor members of the Association of the Wall and Ceiling Industry: “What is the most valuable lesson you learned from the recent recession?”
As expected, many lessons were indeed learned, spanning a wide spectrum.
Here then, are the lessons shared.
And that said, let me get out of the way and turn the microphone over to the contractors:
President of Robert A. Aird, Inc. in Maryland
“To survive the recession, we had to institute austerity measures like cutting wages, but our employees understood that earning less was better than not earning at all.
“We also looked for ways to perform our work more cost effectively while also working to bring down the accounts receivable and so improve our cash flow. What we refused to sacrifice, however, was our reputation for quality work, safe practices and service to our customers.
“This saw us through; and we survived with our reputation intact as a contractor of choice. Also, today our employees are, in fact, earning more than before the recession.”
General Manager of Olympic Interiors, Inc. in Washington
“What saw us through was finding a balance between minimizing overhead (by making the necessary cuts) and keeping valued employees. Not an easy task. In fact, we did see one of the biggest drywall companies in our area go under, and it certainly looked like they should have pared their overhead a lot more than they did.”
Division President of Marek in Dallas
“The most valuable lesson I learned was to recognize that everything will change with time. Good times will worsen and rough times will improve.
“So, circling the team and together deciding how best to ride these crests and troughs helped us.”
Principal at Commercial Enterprises, Inc. in New Mexico
“We had to ride out these Obama years in construction with the resultant loss of trained journeymen. In fact, most JMs in the 40-50 age bracket either left the trades for other work, took early retirement or took shelter under some government umbrella.
“The lesson learned is that the recession has left the industry ‘labor poor’ and we now have what, in effect, is the tail wagging the dog curtailing our ability to quote and win short duration contracts since we always run the risk of missing deadlines for lack of skilled labor.”
President of F.L. Crane & Sons, Inc. in Mississippi
“Initially, we began cutting perks and things we didn’t really need to perform. Then, as work fell off further, we began taking on jobs that made us almost nothing in order to keep people busy, eventually taking on work at below our cost to keep people on.
“Even though we began cutting our overhead before the downturn really hit, and thought we had done fairly well at that, we did not cut enough, nor quickly enough.
“You must be prepared to scale down much quicker than we did, and that is not an easy decision to make when it entails letting people go in a down economy—as they then will have to struggle to make ends meet. Still, you have to make those decisions much quicker and keep the business strong for those you can keep on your payroll.
“Should we hit another recession, we will take action sooner and be more practical about laying off those who do not perform 100 percent, whether that person has been with us 30 years or not.”
Vice President of Sales at J & B Acoustical, Inc. in Ohio
“Lesson one: Stay calm, don’t panic. We are a four-generations company so we have quite a past to remember. We know that you must not lose your cool during a crisis.
“You discover soon enough which GCs are worth fostering a continuing relationship with, by who still calls you. During the downturn, it was very interesting to note how GCs began keeping things ‘in house’ as a means of retaining their own employees. Honestly, you can hardly blame them; they were protecting their most valuable asset.
“However, it was interesting to see that some GCs did not take that stance and still wanted to partner with us, and those same relationships are the ones that have helped us generate the backlogs we now have.
“Also, work on maintaining a good relationship with your bank. Tough times can be made tougher if your relationship sours with your financial institution.”
President of Precision Walls, Inc. in North Carolina
“Do everything you possibly can to avoid working bad jobs. Bad jobs will kill you.
“The financial loss of a bad job is not the major problem; it is the bad team attitude and morale problems that these jobs create that are so deadly.
“In any given year, it is usually only a handful of jobs that cause headaches and cash flow issues, and if you can spot and avoid them, your chances of surviving any downturn in the economy increase significantly.”
President of Delta Contracting Service, Inc. in Michigan
“I think the foremost lesson learned is ‘beware of the banker.’ Isolate your personal assets from business assets. Never forget that your ‘best friend’ the banker has his or her own well-being foremost in mind when dealing with you. The golfing lunch compadres of good times disappear without a trace as soon as ill winds blow. After confiscating all of my personal liquid assets, my best-bud banker-boys quickly moved on to greener pastures with nary a trace.
“In other words, never keep business and personal assets with the same bank corporation.
“The other point that often surfaces during hard times: How much value does one put on loyalty? Hoping that the hard times would be limited to a year or so, I kept all of my manpower working.
“Unfortunately, one year passed, then two and so on, and I still kept them on, though at this point at my own expense. No, I am not submitting my name for sainthood or a Nobel Peace Prize (someone else has to submit it for you—two D’s in Todd, please), but I have wondered what the outcome would have been had I closed up shop until times improved and then reopened.
“It’s neither here nor there. I would not change a thing other than the bank issue I mentioned above.”
Vice President of Construction at JARCO Builders, Ltd. in Iowa
“Our most valuable lesson was that you have to do all you can to keep your most valuable employees working through the recession. We did not want to lose them to a competitor, which would have happened had we let them go.”
President of JARCO Builders, Ltd. in Iowa
“I learned the value of a good banker. We were dropped by our banker of 30 years and then rejected by two others prior to finding our current banker.
“After being one payroll from maxing out our $700,000 credit line 15 months ago, it now stands at zero.
“For anyone in this business, the best banker, the best accountant and the best lawyer are of the utmost importance.”
CEO of The Gallegos Corporation in Colorado
“Take quick corrective action to manage overhead.
“Maintain a strong cash position with minimal debt. This allowed us to ‘weather the storm.’
“Close out projects aggressively, including receivables and retention.”
Corporate Credit Manager at Marek in Texas
“The lesson: Government is the problem, not the solution. Regulations, manipulations and federal government bailouts produced the weakest recovery in history.
“Capitalism is, by nature, a robust and resilient economic system. The federal government is, by nature, controlling, ignorant and suffocating to business and industry. The less Fed, the better the business.”
Owner of RWE – Richard Wagner Enterprises, LLC in North Carolina
“Nail down your contracts, read them, and don’t be afraid to change terms you can’t live with.
“Don’t be afraid to call a job quits and file your lien. The quicker you pull out, the less money you’ll lose and the less humble pie you have to eat.
“Know your GC and know their customers’ ability to pay. Don’t be afraid to ask about this prior to signing a contract.
“Stay away from over-leveraged special projects that are entirely financed by borrowed money.
“Have a good CPA and a better attorney, and don’t be afraid to use them.
“Know when to call it quits. All the GCs’ and/or developers’ best intentions and/or efforts will not necessarily see you paid.
“And, should all else fail, pick up a shovel and dig another well.”
President of Deyo Construction, LLC in New Hampshire
“My most valuable lesson: Document everything every day.
“We noticed that as we cut our overhead and slimmed down to remain competitive, the GCs did the same, then hired lousy superintendents. As a result, GC jobsite supervision was, for the most part, either missing or a joke. This, of course, resulted in improperly sequenced tasks costing us rework, comebacks, and out-of-sequence work.
“It seems that over the past seven or eight years the GCs have simply been releasing all the trades into the building, then shaking it up to see who comes out on the other end still in business.
“To combat this, we have utilized technologies such as Plangrid, averaging over 100 pictures taken a day through our projects. Also, we made sure to include the GC in our weekly (sometimes daily) report of what’s happening at their site that’s preventing us in the safe, planned and productive execution of our tasks.”
Owner of WhiteStar Enterprises, LLC in Oregon
“My answer is short and sweet: During the prior boom, instead of buying a lot of big, new toys, we paid off our debt. Then, when the recession hit, we had little debt left and managed to keep the lights on.”
Lee R. Zaretzky
President of Ronsco, Inc. in New York
“I realize that change is permanent, things will always change. Not only did our market change in 2008, but also the world economy, and this brought more competition and turned our market into a commodity field.
“To meet these challenges, we had to adapt. We had to grow leaner and more efficient while also, in order to distinguish ourselves as a non-commodity, seeking and finding a perfect niche market for us. And today, more than ever, our niche market approach makes all the difference.”
President of Daley’s Drywall & Taping in California
“As work dried up during the 2007–2012 recession we found our sales too low to sustain our highly trained staff, all of whom were very good at what they did and were very valuable employees—most were either family or had become good friends through the years.
“Rather that cut staff to align with sales, we tricked ourselves into believing we could do work more economically than we had ever done before. But trying to meet unrealistic schedules and with zero profit margins to deal with unexpected issues, we ended up losing money on some jobs that we simply took on too cheaply.
“I don’t know when the next downturn is coming, but I do know it will come. This time we won’t fool ourselves in order to avoid layoffs. The positive flipside to that, though, is that even if we had to lay off 20 percent, we’d be keeping the best 80 percent and be all the better for it.”
President of Miller Drywall, Inc. in Missouri
“We learned how to work harder, to manage jobs and crews better, and how not to waste labor. We learned how to make every day count.
“We had to bid jobs cheaper and still make a little money. We also kept talking to our employees to let them know that they would have to put out more because of competition and the tight bidding if they wanted to see a paycheck.”
Chief Estimator at Brady Company, Los Angeles in California
“We made it through by low overhead and an ‘anchor’ project.
“We went into the 2007 recession having just completed one of our largest dollar volume projects ($30 million) ever and we had another, even larger anchor project ($40 million) lined up on the books.
“We also ran a low overhead office with long-term office employees.
“Having an anchor project allowed us to pick and choose other projects that would be a good fit in and around the anchor project, which in turn gave us a fairly steady cash flow.
“We are right now just finishing up our last anchor project (our fifth since the recession) and are now looking for the next one.”
President of Gibson-Lewis, LLC in Indiana
“I’m not sure where I heard it or read it originally, but ‘more contractors die of indigestion than starvation’ is a saying that I believe is true.
“Too many contractors chase volume of projects at the expense of margin. It may be more of a personal issue to take work at cost to keep your crew working during a recession, but if you risk your business in the process, you have not served them well for the future.”
Owner of Kirk Builders in California
“Never take anything for granted. I don’t think I need to elaborate on this, as I’m sure any drywall contractor who went through this understands fully.”
Vice President of Houston Lath & Plaster in Texas
“What I learned is that it does not matter how good a relationship you have with a GC, when times turn tough and everyone is scrambling for work, they will abandon you for the cheapest price or a sub they have no history with just to land a job.
“A few, very large general contractors did just this, leaving many of us to fend for ourselves. The work these GCs, and their low-bid subs, eventually produced was questionable or not even sell-able, and their reputations suffered as word spread on the street.
“Now, they are coming back looking for the quality guy again, if for nothing else than bid coverage or realistic budget numbers instead of a low bid that gets them in trouble.
“I’ve grown a little bitter about being tossed out the window, but I overcome that by being arrogant with these types of GCs, telling them that ‘I don’t do budget numbers for your firm for free anymore. Why don’t you hire the guy that landed you in that lawsuit over the hospital or hotel job?’
“We did survive by being determined, committed to our industry, and by cutting all of the fat. Personally, I took myself off of the payroll for a year. It’s not a good place to be in when you are my age and you try to dig out of a 10-year setback. I can sum it up in one word: Obama-Size-Ation.”
President of Penn installations, Inc. in Pennsylvania
“In addition to the challenges of 2007–2012, we also experienced a major loss in 2010 when a fire destroyed our headquarters. As if the economy wasn’t scary enough, this really had us wondering how our livelihood would play out.
“In hindsight, the solution may have been to lay off everyone and weather the storm, yet having key people stand tall and fight together has its own merit as we stand together today with opportunities ahead of us. I am most humbled by the many solid, well-respected companies that didn’t make it and hope that we can continue to find our way in this new economy.
“What I have learned is to expect the unexpected and keep the blood pressure meds within close reach.”
Vice President of Heartland Finishes, Inc. in Iowa
“The most valuable lesson learned is the value of relationships. We made it through the lean years due to the relationships that were cultivated in the previous years. Construction is very much a relationship business.”
President of Heartland Acoustics & Interiors in Colorado
“The primary lesson: Accelerate the inevitable.
“We did not apply this during the first half of the downturn and probably did the opposite by delaying what really needed to be done. We were too optimistic and we didn’t make the hard decisions to downsize quick enough. We learned a valuable but expensive lesson.
“Today we look a lot further ahead for market indicators and make decisions much earlier when we see things coming. This approach works very well and today we take the ‘accelerate the inevitable’ stance in a lot of our business decisions in order to stay lean and competitive.”
President of Midwest Drywall Company, Inc. in Kansas
“Cash is king.
“Be particular. You don’t have to work for everyone.
“Retain your good people. They will help you through the tough times.”
Vice President of Estimating at Superior Wall Systems in California
“I think most of us were predicting and planning for, at most, a couple of down years in 2007. When it went on to three, four and even five years, we started thinking this may never end. While we always try to keep as much retained earnings on hand as we can to be prepared for a bad quarter or two, we had not anticipated the duration of this last downturn.
“A company needs to meet an economic downturn by trimming overhead costs, and you need to find the best way to do this without compromising the assets and resources you will need for the long haul.
“You don’t want to over-react, but neither do you want to retain overhead that will burn through your retained earnings, putting your company in a bad financial situation. That means very tough personnel decisions.
“Also, client relationships are paramount; they will help you survive an economic crisis. These relationships must be fostered and maintained during good times because without solid relationships it becomes very difficult to land profitable work in a low-bidder economy.
“I think the two biggest lessons learned was the absolute importance of client relations and that you need to stockpile cash to carry you through the bad times.
“I believe just about everybody in our market did that since only a couple of firms went out of business.”
Chief Executive Officer of Marek in Texas
“First of all, this wasn’t my first or most severe recession. The period 1985–1988 may have even been worse, at least in Texas. We had the oil bust, from $38 to $6 per barrel, the savings and loan crisis, changes in the tax code that discouraged real-estate investment, and an overall attitude of despair. It was an unhappy time to say the least.
At the time, we were fairly well leveraged in order to take advantage of the pre-bust boom. When the boom was over, work continued but we were unable to remain profitable. With the pressures put on our banks by the FDIC, and ultimately Resolution Trust Corporation, banks had no option but to call loans.
“We were fortunate in that we had a foresighted banker who predicted this would happen and warned us to convert short-term debt to long-term debt before our line of credit was called. It was not easy to obtain long-term financing on anything in those days, and we had to pay way too much in interest but we were able to survive to fight another day.
“Subcontracting is not easy. If you do it right, you pay your men weekly, your suppliers in a timely manner, and then wait on your money from the GC. Sometimes that takes longer than it should. A line of credit is a must or, if you’re fortunate or able to, you build up capital reserves to furnish your own line of credit.
“After 1988, when profitability returned, we made a conscious effort to build a ‘war chest’ to eliminate the anxiety of the next downturn. It took many years, but directing profits into the war chest instead of into my and my two partners’ pockets did pay off through the downturn of 2008.
“We were able to keep some very good folks, both in the office and in the field, while other companies were not as fortunate. We did our best in a tough market and while we took some losses, because of the war chest we continued to do the right things for the right reasons. When the markets finally turned, we were in good shape to service our clients and enjoy the rebound.
“The unfortunate, unintended result of the downturn is that many firms laid off skilled workers and when work picked up, decided to hire labor brokers rather than develop craftsmen. Now, there is a definite cost advantage to using labor brokers apart from the fact that not having employees eliminates safety training, injuries from workmen’s comp and the cost of recruiting and training workers. Additionally, if and when the Department of Homeland Security or Wage and Hour calls, you have no W2 employees, and it ends right there.
“Of course the downside is that those workers don’t belong to you and at some point we might get an immigration solution and Wage and Hour and the IRS might start enforcing the existing laws on the labor brokers as well. This is not likely to happen anytime soon, but you never know.”
President of Green Mountain Drywall Co., Inc. in Vermont
“The first thing I learned was to put away as much money as you can when you are making some. We are a pretty conservative contractor, so we were fortunate to stash away enough for that long rainy day, which was from 2007 and in some areas still going.
“Then, you have few friends in this business. It was amazing to me that when the economy was going gangbusters, contractors were always happy to see your company on their job sites. They knew that we were qualified to get the project done right and on schedule no matter what the circumstances. However, when things started going south and you were 3 percent off on a million-dollar bid, they would sell you to the devil, couldn’t care less about the previous 15 years of a great business relationship, it all came down to the bottom dollar, and a lot of them sank with the ship.
“Oh well. As they say in France, ‘C’est la vie.’”
Business Development at Englewood Construction, an Illinois General Contractor
“The most valuable lesson we learned during the economic downturn is that customer loyalty, not just current-job satisfaction, is what, as commercial general contractors, we need to earn every day.
“A satisfied customer has a stable of GCs they share the work amongst whereas a loyal customer only wants to work with you. When the project activity diminished during the downturn, it was our relationships with our loyal customers, their referrals and our reputation that brought us to the other side even stronger.”
Keep your eyes open, and act quickly to cut cost at the first sign of another downturn. Value loyalty and relationships above and beyond all else. Shun bad jobs like the plague.
And never forget that the only constant is change.
California-based Ulf Wolf is the senior writer at Words & Images.