Fear the Herd

I never thought I would find myself in a discussion with my 75-year-old mom about the world market for complex financial instruments or the London Interbank Rate (LIBOR), but there we were talking high finance like we actually knew something. Indeed, the breadth and depth of the ongoing banking crisis is alarming enough that everyone is paying close attention. And today, more than ever, there is an endless supply of news and opinion to feed that desire to know more about an unfolding situation. You can browse the Internet on your phone or you can watch a 24-hour news channel and really get your fill. As a result we tend to move like herds. And I can’t tell which is worse, the actual problem (a brewing global recession) or the compounding fear that is associated with it.

Remodelers are not immune to this fear. We were in a perceptible slowdown before the banks imploded. A Twin Cities remodeler recently told me that he had dug out a statistic from his local building department that showed remodeling permits for projects over $50,000 dollars were down 43 percent in Q2 ’08 vs. Q2 ’07. This, plus the reality that his flow for qualified leads had slowed, put him in a position where he now faces drastic cost-side reductions as part of his plan for 2009.

In difficult economic times each business owner must answer some important, often personal questions, about how to navigate the road ahead. Here are just a few that I have heard from remodelers recently. How much personal money am I willing to plow into the business to keep it afloat at the risk of perhaps never seeing it again? Am I ready to add back job functions to my list of responsibilities like estimating, administration or warranty issues as my team gets smaller? How hard am I willing to work to keep this enterprise afloat? Do I want to work 50, 60 or even 70 hours a week? Every remodeler’s situation is different. Some, like the NAHB Remodeler of the Year Jeff Hunt, who is featured on pg. 22, have yet to feel anything but an upswing in business. Therefore, directional decisions must be made based on very local information.

At the end of the day, remodelers and business owners must guard against two opposing forces. First, you must guard against being caught up in the herd mentality that we are entering some kind of great depression, and by resisting you must make a plan that allows for the possibility of growth. Second, you must acknowledge local conditions and set a course that may be very different from the go-go remodeling days of just a few years ago. If the business climate remains relatively positive in your area, like it does in Houston, the Pacific Northwest and parts of the Atlantic Southeast, even in parts of California and the Northeast, then go with it. Only you know your business well enough to properly assess its outlook and needs. With 130 million existing homes in the United States with an average age of 32 years, I have a feeling that one year from now we will look back on a situation that is much more positive than it looks today, and it would be a shame to have unnecessarily chosen a negative course that caps your upside.