Value Added: When Business Turns Cold

By Thomas Heath


I used to get giddy when the envelopes from Fidelity Investments and Vanguard Group arrived in the mail each month, informing us how much new wealth the magic stock market had bestowed upon us. I would contemplate the balance and think of what steel king Andrew Carnegie said the first time he received a stock dividend: "Eureka!"

Now, like much of the rest of the world, I can't even look. My wife, Polly, opens the envelopes, says nothing, and sends them straight to the file cabinet. Dreams of early retirement have faded.

Goodbye trip-around-the-world. Hello couch and clicker.

Judy Miller, 69, is in the same leaking boat.

A year and a half ago, Miller and business partner Margaret Laurenson, 63, were thinking of pulling back a bit after 30 years of running their Falls Church fireplace store known as Woodburners Two. Maybe ratchet down the workload. Hire some managers to take over. Take a salary cut. Schedule some well-deserved travel.

Then you-know-what came along. Credit crisis. Recession. Stock market plunge. Call it whatever you want.

"We had different exit strategies that we were thinking about," said Miller, who said she has only lost 15 percent of her retirement and taxable savings. "One was to sell [the business]. Another was to cut back on hours and get managers to run it. I had saved a lot. I had a really conservative plan [administered by Merrill Lynch no less!]. And then this happened."

Sales of gas-installed fireplaces, which was their bread and butter, declined with the drop in homebuilding and remodeling. Overall monthly revenues fell 10 to 20 percent.

Now Woodburners is trying to stay alive long enough to ride the cycle back up. They hired a business consultant to help them save on costs, and they are rapidly implementing changes to stay cash-flow positive.

"We felt like we had to stay here and get through this tough time," Miller said. "I don't want to hand it over to someone who has to struggle."

Miller and Laurenson were neighbors in the 1970s and shopping for fireplaces in Manasses to help defray the rapidly ballooning costs of energy. The owner of the store, who distributed fireplace equipment to other stores, recommended they get in the business.

"The guy made it sound like we should do this," Miller said. They researched the business by calling fireplace or woodstove-makers up and down the East Coast. They borrowed $35,000 from Union Bank, putting up their homes as collateral. They bought some second-hand commercial furniture in the District and a new cash register in Baileys Crossroads. They talked to a friend in commercial real estate and found 1,200 feet of relatively inexpensive space on Wilson Boulevard in Arlington, and paid two months' rent in advance. They begged a couple of manufacturers to sell them two stoves, and drove Laurenson's family van to North Carolina and to Harrisonburg, Va., to pick them up. Later, more stoves would arrive, sometimes in the middle of the night, and the women would be in the shop ready to receive the deliveries.

Miller and Laurenson both pitch in on the salesroom floor, but they split the back-office functions. Miller handles the finances. Laurenson handles payroll and advertising. They both take care of orders from manufacturers and dealing with employees. They have fired only two people in three decades.

The business grew. Their Falls Church headquarters now has 5,700 square feet, with 2,700 of that devoted to the showroom and the rest to a warehouse. There is another 2,800 square foot warehouse in nearby Merrifield, Va.

The stores sell everything and anything to do with fireplaces, but the big cash cow is a direct vent gas fireplace that costs between $2,765 and $5,000, depending on size and accessories. Tack on another $1,000 for installation. Woodburners sells between 500 to 600 fireplaces a year, and the company shoots for a 40 percent profit margin. A big chunk of the business is from custom homebuilders and remodelers, although anyone with a woodburning fireplace can come in and buy a grate or a liner for the rear of the fireplace called a fireback.

Revenues peaked two years ago at $4 million, but declined 15 percent to $3.4 million in 2008. November was the only month in 2008 that had more revenues than the same month in 2007. Payroll in 2008 topped $1 million (31 percent of budget); rent was $204,000 (6 percent). Insurance killed them in 2008: costing $165,310, up from $63,000 over 2007. Most of that was due to health insurance expenses.

Woodburners has around 18 full-timers, who make anywhere between $25,000 to $70,000 a year, depending on the job. There are bonuses and commissions that range from $500 to $5,000 for top salespeople. The company pays half of employee health insurance. The owners pay themselves around $100,000 a year, but that climbs higher with bonuses, retirement contributions, benefits and gizmos like cell phones.

There are seven company trucks, although they are trying to sell two of them to save money. Woodburners Two finished 2008 with $48,000 in working capital.

January, though, started off badly, with revenues down 20 percent from last year. Worried about declining revenues (they were down another 20 percent in January), Woodburners hired an industry consultant to help them cut costs. They found the consultant when he sent an e-mail seeking business, and they called his references to check him out. They have paid him $5,500 so far; the full bill is $16,000 for six months.

To stay afloat, Woodburners has eliminated overtime and cut employee hours by a day a week. They have postponed upgrades on computers and the showroom floor and put off buying a new van truck. Woodburners is trying to buy new inventory in shorter bites instead of buying several items and letting them sit in the warehouse until they are sold. Buying fewer items at a time frees up cash for other things. They have cut back on advertising. They are even asking their landlord for rent relief, but they haven't heard back yet.

The hardest part of running the business is making sure what people buy in the showroom is what gets installed in their home, and making sure it is done as efficiently as possible to save on costs.

"The hardest part is the follow through, passing the baton from the salesperson to the installation people to the scheduling and getting everything right," Miller said. The key is to keep what are called "go backs" to a minimum. A "go back" is when employees, for one reason or another, make repeated trips to customers' homes to complete an installation. They are costly, inefficient and time-consuming. Miller and Laurenson said reducing "go backs" is a key part of their strategy to save on costs.

Miller and Laurenson are drilling down hard on the scheduling to make sure they get the best use of their trucks and crews. Each van has a GPS system to help them find the quickest way to the job. The company is trying to keep crews as close as possible to their next assignment so time (and gas) is not wasted driving miles between jobs. The consultant recommended installing devices in the vans that will allow the owners to track the vehicles every minute of the day.

"For 28 of our 30 years, our financial picture was healthy," Miller said. "We want this company to survive no matter what. Retirement is not now in our vocabulary."

By Dan Beyers  |  March 8, 2009; 8:00 PM ET  | Category:  Value Added
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Comments

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Business is challenging for everyone right now, particularly those who rely on a strong housing market.

I have to say, it sounds like these two are doing everything right in this climate though.

Posted by: furnituregirl | March 9, 2009 1:10 PM

Like Tom and Polly, I too fear the demise of the stock market...but relieved to know that some small business owners are hanging in there. (even though early retirement is not an option). These gals have a stellar business model and it’s enlightening to learn that they’ve have tucked away for a rainy day. Nobody could have forecast this horrific economic downturn, but I believe Judy Miller and Margaret Laurenson will continue to soldier on and end up doing just fine. Another informative read by Mr. Heath!


Posted by: matthagan | March 9, 2009 2:10 PM

It sounds like they are doing everything right from an operational perspective. I would encourage them to look at the marketing activities and see how they can incorporate some guerrilla tactics, especially online PPC & SEO to generate some net new business.

Posted by: kellyh99 | March 9, 2009 2:24 PM

In addition to the cost-cutting moves they are successfully doing, now is the time for no/low cost marketing (email). They've got only a few more weeks to interest people in fireplaces before thoughts turn to warm weather. Time for an end of season sale.

Posted by: lsara | March 9, 2009 2:36 PM

This is a timely and important article. Tom Heath does a great job highlighting the everyday power of innovation and resilience in US small and medium sized business. The careful delineation of the various ways in which this brave team of Miller and Laurenson has worked to overcome adversity is both an inspiration and a lesson in how to think about business. American innovation often springs from challenging times. By carefully showing each step of the business tactics and strategy, Mr. Heath illustrates how small differences can often have such significant consequences for businesses.

Morris Panner
CEO -- OpenAir, Inc.
www.openair.com

Posted by: morrispanner | March 9, 2009 2:56 PM

They might also want to consider how they may be well positioned to capitalize on the growing alternative energy market.

Posted by: lostinthemiddle | March 9, 2009 2:59 PM

i like lostinthe middle's point on alternative energy possibilities. i should have proved that more. thanks lost.

Posted by: heatht | March 9, 2009 3:17 PM

i meant "probed" not "proved"

Posted by: heatht | March 9, 2009 3:18 PM

Another solid read. I would like to see what their business strategy during the offseason months now looks like. I would imagine strategy has changed as a result of current market conditions compounding the affects of the offseason market.

Is email the answer (Isara)? Is it time to move toward a more grassroots campaign? Perhaps they could utilize social media to connect satisfied customers and reach out to potential clientele.

Posted by: bfryer | March 9, 2009 3:38 PM

i should use their fireplaces to burn my cash -- it's probably a slower process of losing money than putting it in the stock market.

Nice article -- it's small businesses like this that get crippled during the tough times. Here's hoping they can ride it out.

Posted by: baseballindc | March 9, 2009 4:23 PM

As always, a well done column, Tom. Relevant and timely. Interesting.

Posted by: DMNGOOD | March 9, 2009 5:29 PM

thanks dmngood

Posted by: heatht | March 9, 2009 5:31 PM

Great story. Not just good reporting, but good reporting on a subject that hits close to home to anyone who owns a business. I applaud both women for not sitting back and letting the situation control them but instead taking the bull by the horns and making a plan to survive and succeed. I'm rooting hard for them

Posted by: toofred | March 9, 2009 6:10 PM

The great thing about small business is that you can react much more qucikly and take action to remedy situations. I can appreciate thier position and admire their attitude after so many years in the game.

I would consider a complimetary off season business if only to keep work flow going and the team productive. Perhaps grills or outdoor heaters, etc. If they have loyalty on the fireplace side they should be able to convert to another product. It also keeps them in the clients mind year round.

Be careful about over monitoring your crew (vehicle tracking devices). Enlisting thier help and trust will help you tremendously. Giving them a reason to feel like they're not trusted will drive loyalty and productivuty into the ground. Theis is where the consultants always go wrong. Lead People-Manage Process

Posted by: jtdanick | March 9, 2009 7:43 PM

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