Home April 2020 Tough Call: Risk vs. Reward

Tough Call: Risk vs. Reward

Tough Call: Risk vs. Reward

Back in February, you viewed the coronavirus as just another overblown health scare that was unlikely to affect you or your market. Unfortunately, this public health crisis is real, and by late March had already seriously impacted almost all areas of the U.S. In your market, most sit-down restaurants and small retailers closed. LBM dealers were named “essential businesses,” so you weren’t forced to close. However, many builders and remodelers were on lockdown. You were technically open for business, but with traffic down to a trickle, the only thing continuing were some deliveries for existing jobs.

Most businesspeople you knew were in a cautious wait-and-see mode. Bob from Unstoppable Homes, however, is not most businesspeople. In the 20 years you’ve known him, he consistently looks at what other builders are doing, and he does the opposite. Sometimes it works, sometimes it doesn’t. Instead of building his business slowly and sustainably, he’s always looking for a big score.

For example, when it was clear that there was a need for rental properties in your market, he went all-in on multifamily construction. At first it was great with landlords snapping up the apartment buildings, and Unstoppable Homes appeared, well, unstoppable. Bob was hiring like crazy, planning to grow his company and expand into other regions, and become one of the big builders on the cover of a magazine. Until the tide turned, and the local rental market was overbuilt. Then Bob was forced to backtrack, lay people off, downsize his operation, and focus on the fundamentals.

You were his supplier during that time, so you were in the front seat with Bob during that crazy rollercoaster ride. You were forced to write off some of the business when it was clear that he was over-extended. Fortunately, the extra margin earned upfront cushioned the landing.

Bob, being Bob, sees this latest crisis as an opportunity—and wants to take full advantage of it. But to do so, he needs a supplier who’s willing to roll the dice with him. “There’s a lot of opportunity right now for bold companies to grab market share,” he exclaims. “And that’s exactly what I intend to do. But I can’t do it without my supplier at my side, rolling the dice. After all, no risk, no reward.”

Bottom line: he asked you to expand his credit and relax the terms. When you hesitated, he was quick to state that if you weren’t with him on this, he’d go to another supplier. You don’t want to lose his business, but you don’t want to go on another wild ride—which could end up being the smartest thing you ever did or, if it went poorly, could be catastrophic for your business. What would you do?

What would you do?

Something else?

If you’d take a different plan of attack, email your suggested solution to James@LBMJournal.com. If we publish your reply, we’ll send you an LBM Journal mug.