As talk of economic recovery reveals some light at the end of the tunnel called the “Great Recession,” part of the conversation centers on how lessons learned these past two years can be applied to 2010 business plans.
While industry veterans have survived and even thrived through past economic downturns, no one has experienced one of this caliber.
It’s been a mixed bag for erosion and sediment control specialists: While new construction work has dried up, there is still a need for services on existing construction sites and other areas prone to erosion and sediment problems to avoid fines through compliance. Economic stimulus recovery money has presented opportunities for some erosion control specialists.
Given such circumstances, how does one create an effective business plan for 2010 that considers employees, equipment needs, and markets served?
“Planning is about managing change,” says Tim Berry, an adjunct professor of entrepreneurship at the University of Oregon and founder and president of Palo Alto Software, a business-planning-software company. A traditional business plan is a thing of the past, as today’s business owner must manage change at a faster pace, Berry points out. Business plans must be fluid and flexible and serve as the first step in any overall planning process, he adds.
Forget the idea of a business plan being a prediction of future needs, Berry says, pointing to the recession as a “great lesson” in challenging such assumptions.
While an annual plan is a way to step away from the business, review assumptions, and take a fresh look at the market, it’s also the first step in an ongoing process that should include the entire team and be reviewed monthly to derive the most benefit from it, Berry says.
Developing a formula-based plan is another myth, says Berry. “Form follows function,” he says. “The classic business plan has a whole chapter describing the company-its history, its organization. If a regular growing company doesn’t have a specific need to show the business plan to an outsider (such as acquiring funding for a startup or other needs), there’s no need to be describing yourself to yourself.”
Generally speaking, a business plan can be developed on a computer where it can be accessed and changed on a regular basis, Berry notes.
He says a business plan serves four purposes: setting goals, creating steps to achieve those goals, developing metrics to track the progress of the steps, and following up by frequently reviewing the plan.
Including explicit assumptions in a business plan gives company managers a springboard from which to start a planning meeting, Berry says. “Start with your assumptions. Have our assumptions changed? That’s one of the first indicators the plan needs to change. Make adjustments accordingly. That ultimately makes business planning an essential tool for managing well.”
Business planning focuses on the interdependent relationships among employees, clients, and equipment needs, Berry points out, adding, “What happens with any one of these three elements will affect the other two. That’s where the plan begins to generate value.”
Key to a plan’s success is buy-in from other employees in the form of commitment rather than involvement, he says. “If the people who are responsible for different functions are involved in the planning process, there’s a natural peer pressure that helps as the process includes review meetings. Somebody is going to feel bad if they let their part of it fall.”
JoAnn Laing, chairperson of Information Strategies and author of The Janus Principle: Focusing Your Company on Selling to Small Business, says that in a recent survey by her company, leaders of small businesses-many of whom had experienced previous economic downturns-indicated they were taking steps to meet anticipated greater demand through 2010.
Discerning trends is the best way to put together next year’s business plan, says Laing. She suggests reviewing customer service and sales requests for what might be happening in the field. Consult with personnel from field servicing, customer service, and sales, all of whom often have a keen insight into what is happening.
Laing also advises company owners to poll current and past clients as to what is happening in their businesses and pool their responses into a meaningful pattern.
Gary W. Patterson, the FiscalDoctor and author of the newly-released book, [ITALIC]Stick Out Your Balance Sheet & Cough: Best Practices For Long-Term Business Health[ITALIC], suggests business owners ask themselves the following questions in developing the 2010 business plan (and follow up each six months to assess the progress of the goals):
- What are the three best opportunities I could create longer-term, and what do I need to do to best pursue those opportunities?
- What are the three top longer-term risk-area concerns of my business today, and how would I react if those concerns materialized?
- What are the three most crucial infrastructure issues I face over the next one or two years?
Lisa Anderson, founder and president of LMA Consulting Group in Claremont, CA, says the 2010 business plan will be a pivotal turning point for companies. “All of the cushion is long gone-it is now essential to immediately focus on the most effective path forward,” she says. “Business plans for 2010 must include a continuous feedback-and-adjustment loop.”
Is it possible to be successful even through one of the worst economic downturns in decades?
Carol Davis has been, due in large part to making adjustments to the business plan for her hydroseeding business. The president of the Briar Group in Edgewood, WA, notes that while the retail market has become tight over the past few years, commercial bidding has been strong. September and October were big months in erosion control for the Briar Group.
“After struggling all year, I was hesitant as to what was going to happen and if we were going to have a market,” says Davis. “In the past, we did a lot of work for builders and developers. That market is not there right now. But in reality, our sales are up 37% due to cost savings I implemented, and our bottom line is up 400%.“There is a way of doing things in the current economy and being successful,” she adds. “You have to make sure you direct your attention to the field that’s available and focus. A lot of people don’t want to do anything less than 100 or 50 acres. I bid projects that have 10,000 square feet, and I get those. And I get high profit.”
Davis has cut costs by cutting back on telephone book advertising to the retail market, relying instead on her name recognition. She’s also cut back on displaying at home shows, noting that the retail market tends to engage more in price shopping. She’s maintaining existing equipment rather than buying new.
While Davis’s Web site is still focused on being retail friendly, she has added a commercial bid page that is updated weekly so area general contractors know what her company is bidding. The site includes a link to the company’s bid manager so contractors can contact her directly. The bid manager accesses the McGraw-Hill Construction Web sites, getting specifications on jobs being bid each week. “She then sends me the specs to bid the projects. I quote it, send it back to her, and she types up the quote and sends it back to every general contractor bidding on the project,” Davis says.
Instead of employing an outside sales representative, Davis prefers having the commercial bid manager work from home, which gives her flexibility and saves Davis expenses.
Commercial sales have increased as a result of Davis’ efforts. “There is more work out there because of the economic stimulus and infrastructure needs,” says Davis. “Commercial projects are what we really need to chase after right now, not retail.”
Briar Group bids 30 projects weekly, contacting up to 20 general contractors per project. “Obviously we’re not going to get every bid, but we are getting a lot more since we implemented our commercial bid page,” says Davis. “Additionally, we’re a Women Business Enterprise, so that gives me a one-up in the bid market.”
Some work simply cannot be predicted in a business plan.
Case in point: emergency work, which is where Oakridge Landscape concentrates its efforts. The company, headquartered in North Hills, CA, services the counties of Los Angeles, Ventura, Orange, Riverside, and San Diego.
While the company scaled back its erosion control labor pool by nearly half during mid-2009, public works projects increased, notes Richard Dunbar, the company’s general manager for erosion control. In response, Dunbar plans to hire 20 employees in the autumn. Oakridge Landscape performs post-fire erosion control work and is the primary landscape and erosion control contractor for the Los Angeles County Fire Department.
Then there’s El Niño.
“I’m starting to see a lot of work with the cities now because everyone is worried about fires this year,” Dunbar says.
On the flip side, funding state projects has been a concern in cash-strapped states such as California, says Dunbar.
As with other companies, Oakridge Landscape has seen work for developers and the commercial sector dry up, but that has presented an ironic opportunity: The company is now working for banks and receivership companies now responsible for those properties and concerned about maintaining compliance, especially with tougher job-site erosion regulations in California, notes Dunbar.
“It’s a lot stiffer than what it has been,” he says. “Certain projects are grandfathered in, but it’s going to be tougher on new ones.”
Dunbar considers the challenge he now has a good one-making sure he has enough human resources in his division to cover the projects in which the company is involved. He’s able to draw from other divisions, but wants to ensure the employees are trained to handle the work and are available when needed.
Sensitive to the impact the economy has had on in-house operations, Oakridge Landscaping has been working with its clients to help them stay under budget, says Dunbar. His own company, which used to budget annually, now sets its budget quarter by quarter.
Dunbar has experienced economic cycles in the 30 years he’s been in the industry.
“The economy has always gone through this cycle,” he says. “But the weather has been a totally different animal lately. It used to be a lot more predictable. So everybody’s been skeptical on whether or not they want to spend the money.”
To predict industry trends, Frank Brown, president of CFB Contracting in Clayton, NC, speaks with college and university professors. “They’re doing research, but you may not hear about it for five years,” he notes. “Wherever they believe the field is going toward, that’s the area where I work.”
Brown is a one-man environmental contracting operation whose work in erosion and sediment control takes him throughout the state, as well as some parts of Virginia. As he plans for the upcoming year, he counts on using what has worked for him the past. He says that by reading about environment and politics, he anticipated a downward trend a few years ago and reacted by paying his equipment off and paring his business down to what was mandatory to keep going.
Brown believes in diversification, providing umbrella services in training, consulting, inspections, and environmental education. He derives more work from visibility in different venues, he says.
For now, Brown sees opportunities in homeowners’ associations and property management work. He’s also noting more competition. “More people are realizing there is money to be made in the environmental field, and sometimes we use the same products,” he points out. “When it comes down to it, service, installation, and quality is really the key, and I’ve always done extremely well with that.”
While some erosion and sediment control specialists hedge their bets on diversification, Jerry B. Sanders, CPESC, president of Sanco Design in Plano, TX, takes the opposite view.“I wouldn’t jump into anything that I don’t normally do-especially in a downturn,” says Sanders, who has been in business for 37 years. “I find that when you hop around and try to diversify in a down market, you have a learning curve and it takes all of your capital away.
“You want to reserve your capital. That’s why we want to buy equipment when there’s no down payment or maintenance required, so the capital can be reserved and we can still run good equipment.”
Sanders also prefers fine-tuning his company’s specialization. His company’s 22 employees provide services in soil stabilization.
“I focus on established customers and try to be more customer-oriented so they know they are important,” he says. That includes not being tardy on callbacks. “If you respond quickly, especially when times get tight, customers feel comfortable with you, that you are going to do the job.”
As an industry veteran, Sanders has learned to “look down the road” based on a current political administration’s policies and adjust his business plan accordingly. He has not yet derived any income from projects funded by the economic stimulus funding, he says.
Sanders says when he puts together his business plan, he considers tax ramifications on equipment purchases as well as the operations of his business.
When the economy reaches what is apparently the bottom of a downturn, Sanders uses the opportunity to rid his company of aged equipment “so my maintenance and repair costs drop off the board,” he says. “I buy new equipment with low interest rates so I can get in at low fixed-rate or zero-percent interest. Usually the equipment dealers are willing to negotiate better at that time.
“I know the length of the slowdown is probably not going to go any more than a three- to five-year run,” he adds. “It gets me to where I’ve got control over costs on all of my equipment that was giving me any kind of problem or was getting to that age where it would. Manufacturers’ warranties [on new equipment] take care of all of those costs, and that drops maintenance costs dramatically, which keeps my operation costs down.”
Because stabilization is mostly a “crisis oriented” service, it can be unpredictable, Sanders notes. “If there’s a lot of rain, that helps us; if there’s not a lot of rain, that helps us,” he points out. “I’m very fortunate in that aspect.”
Some business strategies Sanders employs includes participating in Moody’s surveys and following data from technical organizations. He reviews the charts and crunches the numbers to ascertain how events may affect the Plano region.
“I’ve charted the trends for years, because being in business for so long, you know you’re going to have these ups and downs,” he says. “If you pay attention to how you responded incorrectly or correctly to some of them, that really helps.”
Sanders agrees with the experts that business planning is a fluid process. “We have a quick meeting every morning to lay out the day’s activities and look at the next move,” he says. “We have weekly meetings where we talk about scheduling and plan company operations. We have our overall plan where we do the farther-reaching month- or year-long plan.”
Goals are set up for one- to five-year plans and evaluated on an ongoing basis. During monthly planning, the focus is on researching product purchases and staying on top of all of the cost items.
“When I first went into business, you’d have a one-year and a two-year and a three-year plan,” says Sanders. “You really didn’t worry about planning seasonally. Now we work on plans on how to operate daily as well as how to work seasonally as well as being goal-oriented. It changes so rapidly.”
It’s nerve-wracking enough for industry veterans to figure out their next move in a sluggish economy. But it’s a real nail-biter for those who have recently started a business.
Tom Williams is a relative newcomer to the industry, having started his company, SiltPros in Woodstock, IL, in 2004. He started the business because he was unable to find the erosion control contractor he needed as a builder and developer.
“I created the company with simple expectations of how it would run and was caught off guard with the economy,” he says. “We’ve adapted quite a bit.”
When he first started the business, the residential market was the company’s bread and butter. With a service area located throughout Chicago, its suburbs, and southern Wisconsin, there was plenty of residential development going on to keep the company busy.
SiltPros met the increasing demand with silt fencing and simple stabilization techniques. The company evolved to offer more complex techniques in seeding and blanket installation, and Williams increased his education to include a Certified Inspector of Sediment and Erosion Control qualification.
“That took us for a couple of years and we did quite well, still focused around the residential side,” says Williams. As residential work disappeared, Williams focused his company’s efforts on commercial and roadway work, networking with contractors and modifying his company’s services to provide what the contractors needed.
Although it was a bit of a financial stretch, Williams invested in a hydroseeding machine to add to the company’s services.
“It’s a cost-effective way for stabilization,” he says. “Once we acquired that machine, it gave us flexibility, even with the residential side. The residential contractors were coming out of a horrible winter. They had a lot of unstabilized soil. Municipalities are enforcing the stabilization. [Property owners] need the most cost-effective way to do it. We were able to provide a lot of hydroseeding services we had not done in prior years.”Williams had been in touch with the Finn Corp. regarding a HydroSeeder. “We had been talking about it for years, and we finally made that decision when one of the main contractors we were working with gave us the green light on several projects,” he says. The projects proved to be a decent size for hydroseeding. With interest from other clients as well, it made good business sense to Williams to invest in the HydroSeeder.
“In previous years, I would have bought the equipment and made it work,” he says. “But we need to make sure at this point we have enough work to support the purchase.
“The same thing with hiring,” adds Williams, who maintains an average of 10 employees. “I think everybody in the field right now that’s trying to stay busy is understaffed and overworked. We find ourselves in that position, too. Until we can get the money flowing a little freer, we’re going to continue to work fewer people at longer hours.”
SiltPros has done a number of government-funded hydroseeding projects, such as sewer and water mains and roadwork. The company has done a small number of projects funded by economic stimulus money, though the amount “really wasn’t anything that put us over the edge,” Williams notes.
Sediment control work was more predominant than erosion control in 2009, Williams says. The company’s revenues were up in 2009 compared to prior years, something he attributes to accurate economic forecasting and realizing how conditions would affect the industry. “Some of it was good planning and the rest of it was really good luck,” he says.
Williams says his company’s business planning is always a “work in progress.” He plans in the beginning of the year, projecting potential construction work. “At the end of January and in the beginning of February, we’re getting a lot of plans on the commercial and municipal side coming in to our office, so I get a jump start on what we can anticipate,” he says.
Part of planning for the upcoming year also includes knowing whether to buy more equipment or hire more people. Williams tries to gauge that through the number of projects he anticipates. It’s a balancing act between underestimating and overestimating what his company would be required to provide for any given project. “As much as we’d like to get a game plan at the beginning of the year and think that’s going to be effective all year long, we’d be kidding ourselves,” he says. “Two weeks down the road, we may have to start fresh. But we have to have a starting point.”
Williams says that in addition to adding more services for clients and modifying job types, one of the most important steps his company has instituted is focusing on communication. “Just as communication is a great best management practice in the field, we have also found it to be additionally important before the field work begins,” he says.
For example, the company maintains strong open lines of communication with its clients by helping them keep installation costs within their budgets while still keeping them in compliance. And during field inspections with enforcement officers, Williams shares the obstacles his company is challenged with and what his company is trying to achieve with the developer’s small budget. “Explaining honest efforts in tight times has gone a long way, along with correcting any major deficiencies,” he notes.
SiltPros also endeavors to match up with a supplier to assist in better product knowledge, competitive pricing, and account terms to fit the longer payment time schedules to the current economic environment. “No one likes it, but everyone is staying closer to their cash,” says Williams. “Finding the right supplier helps you stay ahead of your competition through education, support, and peace of mind.”
Kevin Ennis, president of Eco-Turf in Raleigh, NC, says his business plan for 2010 is to continue to be as diversified as possible with services related to erosion control and sediment control, to be as cost-effective as possible for clients as well as in-house, and to offer top-notch service and strengthen new and existing relationships.
Ennis says he believes that once a business plan is in place and goals are established, business owners have to make the goals known throughout the company, and everyone has to work together to hold each other accountable.
He agrees that this is a good time for his company to position itself to emerge stronger when economic recovery occurs. “The economic downturn we have experienced tends to thin out the market, creating a lot more opportunity when a form of normalcy returns,” he says. “We had a strong demand before the economic downturn and will be prepared afterwards because of that.”
Ennis notes that erosion and sediment control continue to be one of the most important steps of a project. “Along with this, everyone realizes the importance of having a reputable company that has the knowledge and experience and is not just the cheapest,” he says. “Opportunities find you if you are doing everything right.”
Ennis does not believe in “biting off more than you can chew.” He believes in taking caution in extending credit, and that growth should occur at a steady pace.
“Goals are fine, but they shouldn’t be too lofty,” he says. “Plans are fine as long as you remain flexible.” For now, Eco-Turf is paying off debt and trying to stay afloat with many of its customers going out of business.
One suggestion Laing has for forecasting future needs is to “look backward at your supply chain and see if stockpiles are shrinking, indicating greater demand. Make sure this is not because of reduced activity on the part of suppliers but because of increased demand.”
Davis has seen mulch costs decrease, fertilizer costs stabilize, and seed costs stay the same. She is working to maintain a “healthy” cash flow by restricting her inventory.
In the past, she used to buy large quantities of supplies to keep in the warehouse so she could hit the ground running on a project. “I am now buying my product load by load, because even though we’re doing well right now, it’s hard to forecast when it’s all going to dry up. I can’t be stuck with a huge inventory that I need to pay for,” she says.
The new strategy means she has to be more vigilant, her crew has to communicate when they’re running low on something, and she must maintain good vendor relationships.
Also noting dropping supply prices, Brown networks weekly with a vendor to get a handle on what jobs are being bid and where the markets are going. “Together we figure out what kind of supplies he might think about bringing in at the present time,” he says.
Ennis has been using price decreases to keep his prices the same and “let it go to the bottom line.”
Sanders notes that transportation costs have been a “hidden” cost for years. “Suppliers have absorbed it, and with the increase in fuel costs, they were able to implement a cost item for transportation,” he says. “Once it’s implemented, it’s never taken away. That’s an increase in cost that’s hitting us.”
He keeps a close eye on supply costs. “It’s not like it used to be, when supplies ran a level rate at all times,” he says. “It seems they run level and spike and run level again and drop and spike and run level again. I don’t know what causes that spike.”
