On a More Personal Note...

I have two things on my mind today. Two things that are personal, not business.

First, I opened the mail one day last week at home in San Francisco, and found a bill. Not just a bill, but a traffic ticket. A traffic ticket fine worth $125, for failure to stop at a stop sign in a municipal park in Los Angeles.

It unnerved me. I was totally blanked out on being stopped by a policeman and being given a citation. I simply could not in my mind conjure up this scene. Had I spent some "blackout" time? Do I have a mental thing going on? Are all the synapses not firing?

Actually, turns out I'm fine. There was no policeman, there was no traffic stop. Just a ticket in the mail for $125. And a link to a video.

I ran to my computer, accessed the link, and watched a short video of a car with my license plate fail to make a dead stop at a corner stop sign, then turn right. A short video taken by a fixed-in-place video camera, mounted somewhere near an intersection in a municipal park in Los Angeles, that I happened to drive through on my way to somewhere else.

The mailed citation was signed by a park ranger (a park ranger!), attesting to the fact that he had viewed the video, and deemed it an accurate portrayal of me committing a moving violation. And thus the citation, totally impersonal, in the mail.

Am I guilty? Apparently I am! It's on video!

But this bothers me - a lot. It's way too sneaky. Way too "Big Brother is watching." If I am to be arrested, I want to be arrested in person, by a real law enforcement officer. An officer who is charged with public safety, and who has observed me recklessly endangering public safety, and who is justified in arresting me. Not by a park ranger sitting in a darkened, windowless room watching videos of cars going around a corner and cranking out $125 demand letters.

Creepy.

What's even more creepy is that this citation is not an infraction of Santa Monica statute, or California law, but rather is just between me and the Mountains Recreation and Conservation Authority. No record will be sent to the California DMV, or my insurance company. Seemingly, my fine derives from my infraction of a private traffic law.

Should I pay this? Looks official. But the fine print makes it seem off-the-books. Hmmm...

By the way, the monitored address is 15601 Sunset Blvd., in Temescal Canyon Park. Watch out, all you citizen suspects. There's a park ranger's video camera watching you drive by, every day, hoping to collect another $125 by demonstrating that you eased around that corner!

Just creepy.

........

Item Two:

Our son Colby, 25, was recently accepted into the graduate Master of Fine Arts program at the American Film Institute Conservatory in Los Angeles, in the discipline of cinematography. The Conservatory accepts each year 28 new fellows worldwide in each of a handful of disciplines(producing, directing, set design, etc.). The Institute sponsors the well-known AFI annual achievement awards in filmmaking, and boasts all the Hollywood names you ever heard of.

Colby's Conservatory program is the filmmaker's equivalent of, in my world, Harvard Business School on steroids. We have many friends in and around the movie business, and they say this acceptance is HUGE! Congratulations to Colby, who did this without insider connections, or committing to building a new wing; he did it on raw and unadulterated talent, coupled with his fierce determination to succeed.

I and his mother are simply falling-down proud of our son.

What the Heck is Going On Over There?

My prime business associate in Malaysia recently asked me the pertinent business questions to which everyone in the world wants to know the answers: What the Heck is Going On Over There?

Here's what I told him:

Hello Chew,

The questions you ask about the US economy are difficult to answer clearly. The missing buyer demand is not returning quickly, so business cannot grow until the demand increases.

The companies that make consumable products, or that make the goods that carry and package the consumable products, have been liquidating their raw stock inventory for many months whenever any buyer appears. The liquidated raw inventories are not being replaced with new raw inventory, so the demand for industrial goods has been missing also.

This cycle of liquidation is nearly ended, as manufacturers' inventories are very low now, and any new demand cannot be met from inventory - but will require new investment.

Will substantial new demand reappear? This is the major question of 2009 and 2010.

There are two types of US demand - private consumers, and government ("public") demand. Examples of public demand are military orders (guns), public works orders (highways), and public construction orders (courthouse buildings). Private consumer demand covers every conceivable product used by people, and is potentially much larger than government demand. Statistically, consumer demand makes up about 70% of US economic activity.

Government demand would seem to be more secure and predictable, but in fact is the opposite. Regardless of published intent to spend, government contracting is slow, and often payments for goods and services is even slower. Even now, last year's highly publicized government emergency economic support for "shovel-ready" contracts are mostly still tangled up in government bureaucracy.

Consumer demand is different, and better. We have a well-founded belief that the US consumers have lots of pent-up demand, because we see the singular success of the new US government program for trading old cars for new ones with a sizeable government rebate (the program called "cash for clunkers" - funny name, eh?). For the first time since the recession began, the US government has put significant sums of money directly available to consumer buyers - and the consumers have spent the money immediately. The car industry is suddenly very busy, and very happy.

In contrast, the US government program for putting monies into banks to give them lendable funds has been almost totally unsuccessful, because the banks are simply keeping the money in the vaults, and not lending it to the consumers who will buy the goods that run the factories, truckers, packagers, and retailers. One could argue that the banks are the wrong parties to recapitalize the economy because the banks are now overly risk-averse, when the economy needs some element of risk-taking to return to overall health.

So, the current state of the US economy seems to be
- slowing or stopped inventory liquidation
- cautious but still interested consumers
- widespread pent-up demand by consumers
- lack of urgency to buy (prices aren't going up, and might still go down)
- lack of confidence by buyers to make large financial commitments
- unwillingness of the prime sources of consumer liquidity, the banks, to participate in recovery

The return of consumer demand will be influenced heavily by the length of time that goes by while no new economic shocks hit the fragile consumer. Barring any such new economic shocks, we think consumers will come out of their bunkers with purses and wallets open within a matter of three-six months.

When the consumers return, they will discover an inventory outage, with resulting longer wait times than expected. This outage won't last long, as the capacity to fill the inventory pipeline is waiting in the wings to swing into action. One interesting side effect is likely to be the resurgence of domestic US production, rather than overseas production, due to the need for very fast turnaround of orders.

The requirement for producers and their suppliers, then, is to hang on for another six months while demand builds. The requirements for economic facilitators, like banks and government entities, is to keep a steady hand on the wheel - no changing the rules in the middle of the game - in order to inspire a growing confidence in all parties.

The bottom line is that the future must be a foreseeable future, and not simply a throw of the dice. We're getting there, slowly. This is what the stock market tells us by bouncing nicely from the lows of this year to today's much improved values.

Regards/Jim

Gulag Flooring

I sent a letter to my two California Senators a few months ago. Of course, those two Senators have bigger fish to fry than my concerns; bigger fish such as how to keep the seventh largest economy in the world, California, from becoming insolvent. I presume that's why I haven't yet received my response from them, some five months later.

Here's the letter:

I listened on television to President Obama's speech to Congress last night, and can draw inspiration from his words. But there is a problem in my industry that dilutes the potential effectiveness of this national economic recovery program.

I am the CEO of a private corporation in California manufacturing hardwood flooring. I am concerned that during these times of shrinking economic opportunities that our private sector manufacturing company, and our tax-paying citizen-employees must compete directly in the national marketplace not only with foreign imports, but also with U.S. and state-owned or
-sponsored prison enterprises.

Yes, incredible as it may seem, we face in the marketplace every day competition from wood flooring products made in prisons by low-paid prisoners in Tennessee and South Carolina, and maybe other state prisons I don't know about. Large flooring corporations like Armstrong Industries and other smaller competitors capitalize on this source of captive prison labor (pun intended). As a specific example, one of our prominent California manufacturing competitors recently laid off their 75 local taxpaying employees, and sent the work away to, not China, not Vietnam, but to the prison labor force of the Tennessee prison system. When our company loses business transactions, and we've lost plenty of them in recent months, our employees face layoffs, and the resulting loss of their abilities to pay their rent or mortgages, and the loss of their wages being recycled through the economy. When the prison industry managers lose business transactions, the prisoners simply go back to their taxpayer-supplied rooms and wait for their dinners.

When times are good, this prison industry issue is a minor irritation and routinely overlooked. Nowadays, when things are not so good, it's becoming a big deal. It's obviously unfair to private enterprise, struggling or not, even on the face of it. Surely, the original intent of the prison industry was to provide other state-owned purchasing requirements, such as furniture for schools.

This inequity should be simple to fix. I ask you to introduce clarifying federal legislation requiring prison industries to sell prison-produced products only to public entities such as schools. Prison labor should never, especially now, be placed in competition with private sector labor.

Sincerely,

James P. Oliver, CEO
Plantation Hardwood Floors
Oxnard, CA 93030
www.plantationhardwood.com

How 'bout Them Finances!

I was chatting on the phone with an industry colleague the other day. We two are in different aspects of the flooring business - he is a flooring installation contractor, I am a flooring manufacturer.

Beyond dark-humored comments like, "Write if you get work...," the subject turned to the obscure but ever-lurking danger of working, really extending oneself, for a general contractor, a homeowner, or another flooring contractor, and then not getting paid.

In these trying times, we know some commercial firms will disappear into insolvency. Or not disappear - I know a company that is currently severely insolvent, but still lives, zombie-like, from job deposit to job deposit. If the acquisition of job deposits slows or stops, that final deposit from an innocent and trusting client will be forfeited.

If we stay on top of the commercial insolvents' credit reports, we'll presumably know in time to take evasive action. On the other hand, private homeowners tend not to go broke, but sometimes find excuses, usually irrelevant, to withhold payment for work done.

But my colleague and I were thinking of the client who decides, for no apparent reason, simply not to pay his bill. The proferred hypothetical situation is the client who, unknown to anyone, is down to his final project, has no new projects in the pipeline, has spent all the end-users' deposit- and progress payment monies, and has nothing left to pay us with. The financial damage to us could be upwards of 50% of the contract value, or more.

The question then hanging in the air: what can we do to prevent this from happening?

There are several approaches. The favorite: in California, we file preliminary liens against the owners' properties. But what if your state will not allow this?

Then you have to get creative. Some ideas:

• Contract for a payment bond on the suspect client. Offer to pay for the premium, usually about 5% or so. You may find out right then that the client is not bondable, and thus not financially reliable.
• Contract for payment up front, or at least sizeable deposit upfront with balance due before delivery of the goods.
• Contract for interim payments to minimize the outstanding balances due under the contract, and stop work if the interims are not paid.
• Bypass the suspect contract party, and make your deal with the end-user directly. In this scenario, make sure the suspect contract party can reliably be paid his customary and expected project margin - either by the end-user, as is traditional, or by you.

The ultimate answer may be some combination of the above. But the real solution is to know with certainty the financial status and capabilities of your business counter-parties. This admonition applies equally to suppliers, as it applies to clients. A broke supplier has probably mis-spent your deposit money, or fails to deliver against your time-sensitive obligation to your own client. A broke supplier also lacks the capability to respond to a legitimate complaint about quality or performance, or to spend the money to fix a problem.

In these days, if you don't know the financial status of your counter-parties, you can easily come to understand the awful meanings of "uncollectible account receivable," or "inability to timely deliver."

Chill out! It's a Holiday!

I think I need an attitude adjustment.

I call trucking people to discuss picking up a load of flooring...and have to leave a message. I call the raw flooring mill to discuss an order...and have to leave a message. I check my email...it's mostly spam (no, not you Conrad and not you, Sunny). I check my voice messages. All quiet.

Oh yeah. It's a holiday.

Holidays always throw me for a loop. Shouldn't be this way. Holidays are always forecast. Holidays are always on the calendar - in different colors, to boot. Holidays are eagerly anticipated by the vast majority of people, working or not. Holidays mean good things: good food, family around, places to go have fun, time to do nothing. To relax.

Holidays also mean that shipments won't be finished in time. A project will fall behind. Paperwork will accumulate faster than it can be processed. (There's a rule: it takes five full workdays to recover the output missed in one non-work holiday.)

Did someone say, "workaholic?"

I'd hate to think so. But the workload mountain looms all the time - and I cannot see over it. I hear the wolf scratching at the door. I can't look back - because something's gaining on me!

I'd prefer to say "entrepreneur." Doesn't sound so pathological.

Have a happy holiday... (I'll be here chillin' when you all get back to work.)

Ah, weekends...

On this Sunday morning, the muse is gently whispering in my ear. I dare not ignore her (she doesn't like that...). She says quietly that it doesn't matter that probably nobody cares what's on my mind. She says it is more important to write it than evaluate it.

This is the weekend. Weekend days dish up precious time to me. Weekend days are no longer about kids' activities - the kids are grown up now. It's not about camping, or mini-vacations. Weekend days are about the opportunity to turn down the weekday volume. And, amazingly, when the day-to-day volume is turned down, I find there are other tunes playing under there.

How to turn down the volume? For me, it's reading - books, local newspapers, the business press, trade journals, the cereal box. Like cable TV, a mind has multiple channels - and I discovered reading doesn't take up all my channels. Those channels unused in reading are active in their own right. They are carrying the tunes playing beneath the surface.

It's funny. I'll be cruising along on something I want to read, and suddenly, I have the answer to a lingering question or stubborn problem that I wasn't thinking about -I was just reading the newspaper! This backchannel, subsurface thinking is how, for me, problems get solved, situations get analyzed, business ideas are born.

Today, this morning, it was the Wall Street Journal. The backchannel idea? How to develop a flooring product that incorporates a special "green" technology that everybody wants, but nobody provides.

Sorry, that's all you get.

But you can be sure I'll renew my Wall Street Journal subscription. Maybe I'll head down to the library for a new book, so I can get some more great flooring ideas.

Something's Happening Here...What It Is Ain't Exactly Clear...

Yes, something's happening here...in the construction world, and the flooring world. Those of us of a certain vintage remember that Vietnam-era song, mostly addressing the paranoia of the times.

Our little flooring business has gotten busy! And it all happened at once, it seems. Every corner of our national market has perked up, with one exception. Almost as if the logjam broke in all minds at the same time.

Of course, we're thrilled. We are back to making floors and parquets as fast as the lumber and blanks can be trucked in, unloaded, and queued up. Our factory force is back at full strength, and we're carefully calculating lead times in our quotes again. This is exhilarating, and we TRUST it will continue for awhile.

The one exception is Las Vegas. That town is a construction disaster area, after having once been anticipated as the saving grace for commercial construction. Many hotel projects in Las Vegas are nearly finished; and the big one, City Center, seemingly has the financing actually to be completed. But many others, although nearly complete, are shut down for lack of the financial wherewithall to go forward to completion. Strange. To think of all that sunk cost, now inches from the finish line, and someone somehow can't close out the deal.

So, remodelers and new constructors, residentials and commercials, congratulations on getting the resources together to get those projects back off the drawing board and into action. Our architect and designer friends aren't far behind, although those projects take longer to cycle through. Still, our work tables are covered with plans and drawings, construction budgets are being drawn up again, and a cautious enthusiasm is in the air.

Do you feel it too? Give us a shout - what's going on where you are?