Adapt or die

Diversification reigns as contractors adjust to the beat of what they are describing as a “fundamentally changed” industry.

Many landscapers are using the word “flat” to describe business this year as owner and consumer confidence and service pricing remain low, office

buildings and homes suffer high vacancies and margins dwindle under the continued, tighter restraints of running a landscape business.

But despite the lingering recession, the industry has not flat-lined. It still has a pulse — nearly half of contractors (47%) say so, describing the industry as healthy. Relatively healthy dominates at 39% over the mere 8% who call their market very healthy.

While total company revenue growth was slight in 2009 at 1.41%, 2010 growth expectations are better at 4.6%. And average net revenue is 8.91%. But one can’t ignore those other nagging figures — blips on the screen that show an erratic or unusually slow heartbeat. These are the 27% of people who say the industry is down ((the majority of which (14%) call it down significantly)) and the 26% who describe it as just flat.

“It’s the uncertainty that’s scary,” explains Joanne Kostecky, president of Allentown, PA’s Joanne Kostecky Garden Design. “Nobody knows how long this recession will really last.”

The recession in the mirror may be larger than it appears, according to small business intelligence datahouse Sageworks. Looking at revenue data from more than 25 million small businesses, Sageworks CEO Brian Hamilton says small business sales were down 5% over the past two years, and then down another 5% the following year. “When you go down 5% and then 5% again — as anyone who knows the magic of compound interest will tell you — that’s more than a 10% decline,” Hamilton says. “That level of revenue shrink can have a fearsome effect on the bottom line. Deleveraging assets is the technical term, which translated means, ‘I’m stuck with the same fixed costs but have less income with which to pay them.’”

The bright spots seem to be coming from those contractors who check their pulse regularly, see an unusual or unexpected throbbing and make changes to get a strong, systematic, pounding rhythm going again.  At least that’s the case for those owners who’ve recognized “that in repairing our damaged economy, many of the ways in which we used to conceive of doing business will be fundamentally changed,” says Kirk Brown, Joanne Kostecky Garden Design’s business manager.

What does this mean for the industry? “We will never go back to pre-recession highs,” Brown believes. “The successful companies will be those who can adapt and grow in new models of their former selves.”

Action, reaction

To outperform the economy, contractors are taking action, what business expert and Harvard Business Review blogger Jeff Stibel describes as “an entrepreneur’s best weapon.” “Small businesses can adapt to any circumstance quickly,” he says. “As every thriving entrepreneur knows, speed breeds success.”

Certainly, nothing tops money as the largest client concern. For that reason, when offering new services today landscape and lawn care professionals are looking at things that alleviate the big pain point for customers — saving cash — to provide the ultimate direct benefit for themselves — growing profit. The specific markets that are proving successful add-ons for contractors vary from enhancements to water-saving and sustainability services to specific client needs identified through company surveys.

Another challenge has been knowing expansion or diversification is necessary, but not knowing what services would prove profitable or what changes would make the right difference in the bottom line. “We’re looking to expand into markets we’re not strong in,” says Todd Dilley, general manager of The Lawn Ranger, Minneapolis, MN. “I don’t know what those are yet, but that’s what we’re looking into.”

In the past three CEO Studies conducted by IBM, coping with change was the most pressing owner issue. However, in 2010, a new primary challenge emerged: complexity. “CEOs told us they operate in a world that is increasingly volatile, uncertain and complex,” the study explains, adding that 81% of CEOs anticipate business complexity to remain high or very high over the next five years. “Many shared the view that incremental changes are no longer sufficient. The most successful organizations are using entirely new approaches to tap new opportunities and overcome challenges to growth.”

A warning: Don’t diversify just for diversification’s sake, stresses Chris Senske, president of Senske Lawn & Tree Care in Kennewick, WA. “We’re diversified enough that it’s almost hard to keep track of what we already do so we’re not adding any new services or departments,” he says.

Adapt to economic challenges, strategically diversity, and then “test, measure, refine and repeat,” Stibel suggests, urging contractors to be flexible today. “Spend your time with your ear to the ground and respond accordingly.”

New reality

Though contractors are worried, they are maintaining optimism. This year, 62% of contractors feel optimistic, and 67% are feeling positive about 2011, according to Landscape Management’s survey.

However, uncertainty still lurks around corners. A quarter of the industry feels uncertain about business this year and that grows by a percentage point in 2011. And, nationally, 75% of small business owners believe it is likely or highly likely that the economy will slip into another recession before it fully recovers, according to the September Discover Small Business Watch.

“I’m not an economist, but this recession is lasting longer than I thought it would,” says Bob Grover, president of Hillsboro, OR’s Pacific Landscape Management. “I’ve been working full-time since 1983 and this is the deepest one I’ve seen. I’ve heard discussion that it won’t get back to the glory days so we’re trying to prepare for the idea that it won’t be the level it was before, but it will get better. The term ‘new reality’ is something we’re preparing for. We’re preparing to be able to operate in an economy that is slower than it used to be but hopefully better than it is now.”

“Nothing would surprise me,” agrees Matt Griffin, president of Prime Lawn/Prime Design, Kingwood, TX. “But the idea that it could be worse than last year would scare me. I think it’s going to be better – I’m optimistic.”

David Norred, founder of Laguna Niguel, CA-based Nor-Land Landscaping Co., doesn’t feel as positive. “Overall, I think we still have some time yet before happy days,” he says.

“I worry that if we don’t have some level of improvement, we’ll continue to have further erosion of pricing and further cutbacks of our customer spending,” Grover points out, saying his biggest fear is his customers would want nothing else except to have their lawns mowed. “I hope our enhancement sales will start to go back up again instead of people thinking they don’t need flowers or any extras. I don’t expect it to miraculously recover for 2011, but I do hope to see some recovery.”

Ultimately, “perception is reality,” Dilley says. “It’s a tough time, no doubt, but I try to look ahead and stay positive. I look at it this way: If you’re not positive and excited, your customers and employees will take that cue. You have to portray a positive image.”