How do we define genuine growth—and what are the consequences if we misread the numbers? I shared my take with good friend Mark Mitchell of Whizard Strategy, whose consultancy shares out a weekly newsletter on the industry. Check it out if you haven’t yet at www.seethewhizard.com and let me know what you think at rossiter@interruptdelivers.com.
In the last eighteen months, almost every conversation I have had with companies in the building products and home improvement industry is the same: “We have grown exponentially and we’re very cash rich.” That seems great on the surface, but their growth may be masking a bigger issue.
One of these conversations stuck out to me and was representative of some of the companies I’ve interacted with. This specific leader told me, “We’ve had one of our best years ever, double digit growth at 11%. The company is happy, stakeholders are happy, and employees are happy with their incentives. It’s all good.” But is it?
Numbers can tell us whatever we want them to. It’s very easy to get enamored with growth percentages (especially double-digit ones), as we high-five each other in our conference rooms celebrating an 11% year-over-year growth. But beware, this could be setting you up with a false sense of security and drive organizational complacency.
Complacency comes in numerous forms. Many companies over the last two years have largely curtailed any product innovation investments. This was very evident at both the International Builders Show and the Kitchen and Bath Industry Show this year, with the product innovation awards and entries area very sparsely represented. In the same vein, some companies dramatically reduced their SG&A (selling, general and administrative investments), stating that “right now we can sell all we can make, why do we need to keep engaging with our customers or invest in new products?” This complacency can drive companies and their teams to feel comfortable and being comfortable can be very dangerous to a business.
Over the last year (2020 vs. 2021), the overall industry has grown from $1.47T to $1.59T, representing 8.4% year-over-year growth. Residential construction grew the most, recording a growth of 23.1%. Renovation and remodeling grew 3.3%, adding to a record year and nearly 5% growth the year prior. Commercial brought up the rear with a decline during COVID-19, coming in at -3.3%. And for perspective, the overall industry (considering all materials) saw an on average 16% building materials price increase.
I was recently sitting with that leader who celebrated their company’s 11% growth, and together we delved into more details about their success. 8-10% came from price (that all the competition is probably realizing as well), and the other 1-3% came from incremental units sold. But we then looked at the residential segment which is where 80% of their business was placed. That segment grew 23% (as stated above) in that same time span. So, while they should feel good about their 11% growth, in essence one way to read their situation is that they are actually underperforming the segment and potentially some of their competition.
Take a look at your growth. Ask yourself where it came from—was it merely price, did you move the SKU mix dramatically, did you gain or lose share? Can you define the purposeful decisions your organization made to influence it? Compare your growth versus the overall industry, and especially the segments where you play. This analysis will tell you if you are falling behind, just keeping up through price increases or market influences, or whether you are truly growing and outperforming your peers.
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