Downturns: Fertile Ground for Great Ideas
The business cycle can be a wonderful, though painful, impetus for business improvement.
Though we are unwilling to admit it at the time, for most of us, downturns are when we begin to formulate the next great idea — when we start a new business or reinvent our existing one.
I have made a life out of residential general contracting for more than 30 years. I started out, as so many of us do, working with my hands, learning the trade and gradually having my contracting become more and more of a business. It is interesting to look back at where the “leaps” have occurred.
During the early 1980s, the condominium and the small commercial market was booming. Then came the "tax reform” of 1986 that took away the credit we used to get for losing money. (Imagine that, our tax laws used to encourage us to invest in losing propositions by giving us credits and deductions against other income that more than compensated us for the losses.)
Banks were caught with their assets down. Loans were called. The enormous real estate downturn and the overall economic recession of 1990-1992 were on.
For my business in New England, this period was more akin to a depression. If, in the beginning, I had known how bad it eventually would get, I simply would have gone out of business. It would have been cheaper.
As it was, however, it turned out to be a terrific opportunity for me to reinvent my business.
Up until 1990, I had operated as a trade-based contracting firm. That is, most of the work was performed by in-house staff. We only subcontracted the licensed and specialty trades.
Because we were almost self-contained, I had an enormous weekly payroll and an entire staff of tradesmen culturally tied to a work ethic (good and bad) that they had established. I was forced by lack of business to lay off 75% of my staff.
It was a wrenching and expensive task, but it led to a whole new business model for F. H. Perry Builder.
As we came out of recession in 1993, business started picking up and we needed new staff resources. Having laid off so many two years before, I was reluctant to hire again. So, we made the decision to become a management organization and subcontract all our trade work.
This had three important effects:
- It gave me much greater control of cost through negotiating or bidding pricing for all work in advance.
- We had much better control of who was doing what. Actually, with the new business model, we put ourselves in position to select the ideal sub for a particular task rather than, as in the past, assign a task to someone available (but not necessarily the very best qualified) on staff.
- We could keep our company culture right where we wanted it by making sure that employees were a good fit. We also could hire a sub who was particularly gifted in his work, but who would be intolerable to us as an employee.
At that time, this was a pretty unusual business model for residential general contracting in our area. But, over time and as the economic boom of the ‘90s took hold, this management model has become more and more the standard in our industry.
It is, of course, unclear where the current downturn in the housing industry will take us.
Fed by the “irrational exuberance” of the ‘90s, the low interest rates of the first half of the current decade, America’s obsession with and obedience to a “more and better” housing market, and those in power in Washington willing to put the country significantly back in debt, residential real estate has been the economic driver for 10 years.
It remains to be seen whether the slowdown will become a recession, but I for one will welcome it if it comes ― the first opportunity of the next 30 years.
Finley Perry is owner and president of F. H. Perry Builder, Inc., a Hopkinton, Mass. company he founded in 1975. The firm provides a broad range of design, construction, remodeling, management and maintenance services to residential clients throughout the Greater Boston area. Perry is a member of the board of directors of NAHB, past president of the Builders Association of Greater Boston (BAGB), the current president of the Home Builders Association of Massachusetts and is the NAHB state representative for Massachusetts.
Finley is a former chair of the BAGB Remodelors™ Council, has been honored as Remodeler of the Year at the local and state level, received the Big 50 recognition from Remodeling Magazine in 1998, and his company was named one of the "Best 101 Companies to Work For" by Professional Builder magazine in 2002 and 2003. Last year he was honored as Builder of the Year by the Builders Association of Greater Boston. For more information, visit his Web site at www.fhperry.com, e-mail Perry, or call him at 508-435-3062.