His construction materials company is losing money, but he won't give up without a hard fight.
His construction materials company is losing money, but he won't give up without a hard fight.
Along a well-worn path between the warehouses, the sales counter, and his office, Boyd Hill has lost large chunks of his business.
He stands in the stockyard blinking in the bright Idaho sunshine and pointing into the cool, cavernous silence of four aging warehouses. Huge, yardwide, redwood rafters are tucked up tight against the ceilings in yawning undernourishment. Two men are prowling between dwindling mounds of construction supplies. "There used to be nine men working in there," Hill says. He goes inside the main office building and pauses at the sales counter. The room is empty. Two carpenters pull up in a light-green pickup. They've been here before, but it's been a while. Times are tough, and they need only six pieces of sheetrock. The room is empty again. "There used to be two men behind this counter, morning to night," Hill says, "and it was all they could do to keep up with the business."
His own office is paneled in dark wood, but it's small and practical, an executive-style cubbyhole halfway between the sales counter and the back storeroom. The top of his desk is covered with letters, trade magazines, and catalogs, but a space has been carefully cleared around the telephone. A long list of names lies by the phone. "I used to come in here and think about expanding," Hill says. He grabs the long list and glares at it. "Now I spend my time asking these people for the money they owe me."
A lot of things used to be different for Boyd Hill -- and not long ago. But now a man who once thought only about winning success has to think about fighting failure. And it's a battle, he finds, fought with a double-edged sword, where the cure is easily as painful as the cause.
Only three years ago, Hill's company, the Western Wholesale and Supply Corp of Boise, Idaho, sold $2.5 million worth of sheetrock, nails, roofing shingles, and other supplies to the Idaho building and construction trade and turned a respectable net profit of $142,000. Then interest rates across the country started to climb, and they climbed some more. Hill's customers were dropping like flies. His own business stalled, then sputtered, then nosed over into a steep decline. When his fiscal year ended April 30, Hill's sales were $2.1 million, with a net loss charged directly to retained earnings of roughly $40,000.
"My company is disappearing right before my eyes," he says. "At my current rate of sales, I can't even afford to replace what I sell. I guess that makes me an interesting businessman. I mean, i'm actually liquidating myself out of business and paying for the privilege with retained earnings."
He's still got a smile as wide as the Boise Valley, a handshake that could crack stone, and the appearance of solid self-assurance. But at times his bluff, big-hearted optimism dissolves into a silent, thoughtful stare that says he's been sorely tried watching his company waste away.
Only a year and a half ago, the company boasted a robust staff of 22 employees. But as business worsened, the ranks were thinned through attrition and layoffs, first to 11 and finally to 8. Even those 8 -- including Hill -- had to take a cut in pay. Only a year and a half ago, Hill had two $80,000 tractor-trailers each hauling freight between Boise and Los Angeles six times a month. Now one is parked permanently in his stockyard and the other makes the run once a week. A delivery van shared a similar fate, as did another flatbed truck. Hill's got the flatbed parked in a field behind his house. He uses it occasionally to haul hay to the seven cows and calves he's taken to raising so he doesn't have to spend money on meat.
Hill tries to console himself by remembering that the largest part of his predicament was caused by factors far beyond his control, such as the rocket rise of the prime lending rate. But it doesn't help much when he recalls that his company was sapped of its strength right in the prime of its life. "After 10 years in business," he says, "just when I thought I could relax, I'm back out on the road, back to 14-hour days. The only real difference between now and when I started is that I'm older."
In 1971, Hill was hired by the founders of Western Wholesale to manage the business. Hill had spent six years as a salesman for the now defunct Fibreboard Corp., a West Coast manufacturer of building supplies. He had a reputation for hard work and effective salesmanship, and he obviously knew the technical side of the business.
But Hill knew much more than what product was used where. He knew the one thing that would enable Western Wholesale to compete with larger suppliers, and that was the importance of service. Service, personalized and fast, soon launched the company on a steep curve of rapid growth. "Contractors can get all the technical information they need from a Boise Cascade," Hill says, "but they can't get the immediate personal attention I have to offer. Whenever there was a problem on the job, I'd go right out and settle it on the site. Other than that, I simply worked my tail off and brought in the business."
In 1971, gross sales were $530,000. Four years later, they had passed $1 million and net profits after tax had grown nearly six times. Hill was ecstatic. Then the owners told him that they intended to start paying themselves some decent dividends. Hill was glum. "Oh, I really couldn't blame them," Hill says. "They wanted a return on their money. But I knew the company had built up a good list of customers and a good reputation. I knew it was ready to take off, and I just couldn't stand the idea of taking money out of a business at a time like that."
In a fit of pique, Hill told the owners that they'd have to get a new manager. As an afterthought, he added almost jokingly that they could also let him buy the company for $190,000. He knew the idea was preposterous because that was only the company's net book value. But to his amazement, they agreed to sell. "To this day I don't know what got into them," Hill says. "It's one of the greatest examples I know of the tail wagging the dog." Hill got a Small Business Administration loan from the Bank of Idaho for $175,000, took out $25,000 for working capital, and gave the owners $150,000 in cash plus a personal note for $40,000 at 10 1/4% interest payable in full in 1983.
Once he was sole owner of the business, Hill worked even harder. Where it had taken him the past four years to double sales, Hill nearly tripled them in the next three. When fiscal 1978 closed, Hill had good reason to feel proud. "There I was sitting with the best year in the company's history," he says," "and thinking about breaking through $3 million in the next year. Little did I know." Little, indeed. Hill had seen the boom -- the bust was on its way.
Looking back, Hill says there were signs he could have spotted that would have told him that the foundation of his business had shifted ominously. For example, Dirk Kempthorne, executive director of the Idaho State Home Builders Association, points out that the number of residential building permits issued in the state had already peaked at 12,921 in 1977 and that by the end of 1978, the number had dropped to 9,605. The number of people employed in onsite construction and by industry suppliers had declined from 18,980 in 1977 to 14,110 in 1978. "But," adds Kempthorne, "the worst was yet to come. Trouble would become a disaster and a recession would become a full-blown depression." By the end of 1980, permits issued would drop to 5,398 and people employed would fall to 7,340.
Also in 1977, local county government officials adopted a comprehensive land use plan that, Hill says, severely limited land development in the Boise area. "It had the effect of inflating land prices in the zoning area," he says, "which in turn drove potential home buyers out of the market."
But worst of all, the prime interest rate, long-time deadly foe of the building and construction industry, had already declared its intentions. During 1978 alone, the prime lending rate had crept steadily upward from just under 8% to nearly 12%.
There were signs all right, but Hill didn't see them. "I was too busy building an organization that could support $3 million in sales and more," he says. He hired another outside salesman, bought a new $50,000 diesel, flatbed delivery truck, and completed plans for a new $500,000 warehouse. Meanwhile the building and construction industry crumbled quietly around him. The usually hectic pace at the sales counter slowed noticeably. Even Hill's best customers were stopping by with increasing irregularity, and when they did they were gloomy with bad news.
Some never came back at all. Even though the prime waltzed around between 11% and 12% until almost the third quarter of calendar 1979, the typically fragile balance sheets of many small, independent subcontractors began to crack under the strain. Hill was stunned when three large customers in a row filed for bankruptcy.
For the first time since Hill had joined the company, Western Wholesale closed its fiscal year with a decline in sales, from $2.8 million in 1978 to $2.6 million in 1979. And because Hill had been preparing for another good year, his expenses increased sharply in nearly every area. Truck and auto expense, for example, more than doubled. Bad debt write-offs jumped from $11,930 to $34,598. As a result, greater expenses on a smaller sales base cut net after-tax profits by half, from $142,000 in 1978 to $74,000 in 1979.
The heat was on, and during the peak summer construction months, Hill began to feel more and more the effects of land development controls declared by the Ada County Commissioners in the southwest section of Ada County, which includes the Boise metropolitan area. "That's where the biggest building boom was occurring at the time," Hill says. "Lots of developers lost hundreds of thousands of dollars when the moratorium took effect." Also that summer, the prime began a roller coaster ride that would eventually take it to 20 1/2%. "In October and November sales really turned sour," Hill says. "If you want to know the truth, I'd say I was four months too late in reacting to the business turn.But it was a new experience for me. I was always going forward, not backward."
But the evidence was overwhelming: $3 million in sales wasn't about to happen, not that year or in any year in the foreseeable future. Suddenly, the dream of success became a nightmare of survival. In January 1980 Hill laid off a bookkeeper, and in March he laid off an outside salesman. "It was the first cutback of employees ever at Western Wholesale," Hill says. "Psychologically, it really discouraged me, because I had to realize that I wasn't growing anymore, that I had to retrench." That spring, Hill abandoned his plans for a new warehouse. He was within two weeks of letting a contract for its construction and had a potential source of financing lined up at 12% interest when the prime jumped and knocked Hill out of the market.
If any one thing forced Hill to realize that his company's growth had stalled, it was killing plans for the new warehouse. In his mind, it had been a symbol of progress and a concrete affirmation of years of hard work. Little by little, his company was disappearing. When fiscal 1980 ended, Hill saw that Western Wholesale had slipped over the edge. He reported a net loss of roughly $8,000. The company was failing.
Hill thought his cutback in employees might result in some meaningful savings in the coming year and shore up the bottom line. Then two truckloads of nails that he had contracted for six months earlier in the futures market showed up, and Hill found himself adding another $40,000 to inventory. And the next day found him at the Bank of Idaho borrowing an additional $50,000 at 14% to pay for it. The new loan raised his total credit to $350,000, the highest it had ever been -- and at exactly the wrong time.
The potentially fatal disease was spreading, so Hill cut deeper into overhead. The warehouse crew was cut back from nine men to four and later to two. That summer, in 1980, to save on fuel, tires, insurance, and other operating expenses, Hill idled a Kenworth 40-foot tractor-trailer, a salesman's car, and a flatbed delivery truck. He also laid off the Kenworth driver. Even so, profits continued to fall. For the first six months of fiscal 1981, traditionally the best six months for Hill's business, sales came in at $1.2 million, and the net loss for the period was $12,456.
That December, Hill decided that someone else had to be let go. The choice was painfully obvious. "I couldn't sleep for nights," Hill says. "I knew I had to let Reed, my manager, go. There wasn't enough work for me, so it was clear I should be doing his job as well." For Hill it was like firing a son.
Thirty-year-old Reed Borup joined Western Wholesale in July 1976 as a sales trainee. Before that he had been a carpenter, building homes with his brother. Hill started him out working in the yard, but Borup quickly demonstrated that he had a lot more to offer. He was conscientious and likable and he had a raw talent for management that Hill encouraged. Soon Hill was paying for his courses at Boise State University. There was a strong personal bond between the two men.
In late December, Hill met with the entire staff and told them the business was in trouble. He told them that to cut expenses either he had to lay off Borup or everyone had to take a cut in pay of $75 a month. Hill himself would cut his own pay by $200 a month. The staff considered the problem among themselves and chose to take the pay cut. But apparently Hill misunderstood their decision. At 8 a.m. on the morning of December 31, Hill called Borup into his office and laid him off. "I was stunned," Borup recalls. "We had already voted for the pay cut and I thought he knew that. I felt that he wanted me to go anyway. What could I say? I sat way back in the room when he told everybody about it."
After the meeting, one of the bookkeepers stormed into Hill's office and demanded an explanation of Hill's decision. She convinced Hill that the employees had voted unanimously for the pay cut, and Borup was reinstated. "I was wrong," Hill says, "but I can't tell you how relieved I was. What's more, I felt that everybody was telling me that, good times or bad, we were all in this together."
At roughly the same time the Borup affair was getting sorted out, Hill's $350,000 note came due. Hill went to see Bob Link, then a lending officer at the Bank of Idaho and Hill's banking contact for several years. He renewed the note for 90 days at a staggering 22.75% interest, which at the time was 2 1/4 points above prime. "I simply didn't have any choice," Hill says. "I certainly didn't have the cash flow to pay off the loan."
Link, now director of consumer lending at United First Federal Savings and Loan in Boise, recalls that afternoon: "Sure it's tough for someone like Boyd to pay 22.75% interest. But look Boyd and I have been talking ever since he bought the company. We agreed from the start that it was important for him to build up his retained earnings against a rainy day -- and he has So now he's drawing on it. But a lot of other companies don't even have retained earnings and they can't last and I'm not so sure that's bad.Boyd's drawing on retained earnings now, but he can do it until times get better."
All this is only faintly reassuring to Hill, because recently many of those companies without retained earnings, the ones that "can't last," have been turning up on his own list of customers. Even in normal times, 30% of Hill's accounts receivable are "slow pay," that is, somewhere between 30 and 120 days overdue. But as interest rates rose to unprecedented heights, so did the number of his accounts in distress. Today, nearly half of Hill's accounts are slow pay on roughly $120,000 worth of business.
Hill has long recognized the importance of trade credit and frequently helps customers plan payment schedules. But full-blown commercial lending is another matter. Yet there is little he can do about it. Idaho usury laws prohibit charging more than 13% on amounts of $25,000 or less. And many of Hill's customers have begun to decide that it's foolish to borrow bank money at, say, 18% when they can, in effect, borrow the money from Hill at 13%. So Hill keeps adding names to a dog-eared list of slow payers -- 40 at last count.
Once a week, he tries to call everyone on the list. He asks for money, then he listens to the other guy recite every dodge known to man. Sometimes Hill forgets to call for several weeks in a row, until he's driving past a competitor's stockyard and spots an overdiue customer loading supplies. Then the pain comes back and he starts making the calls again. "Some of these people won't even pay me when they've got the money," Hill says. "They buy campers and snowmobiles instead." Hill figures that hound-dogging these accounts wastes 20% of his time every week, but it means there's still hope, and he vastly prefers it to bankruptcy court, where he seldom wins anything anyway.
Recently, Hill showed his 69-year-old father the bad debts he had written off. "I think it was around $30,000," Hill says. "My father couldn't believe it. He said, 'Boyd, if I had known you were that stupid I would have borrowed more money so you could have gone to school longer.' But I told him, 'Dad, you can never learn enough to stop this. It someone wants to get to you, he'll figure out a way." And despite personal guarantees before he extends credit, Hill still gets stung badly. What's more, it's often by customers he's known and worked with for years.
One man, for example, had conscientiously honored every debt during a nine-year relationship with Hill. But last January, he suddenly pulled the bankruptcy rip-cord after building up a $19,000 credit. "I suppose you can criticize me for letting him get to me for that much," Hill says, "but nine years without a problem is a long time." After too many unanswered phone calls, Hill finally tracked him down and confronted him one morning in a local restaurant. "I just wanted to hear him tell me to my face why he did that to me," Hill says, "but all he told me was that he didn't have any money and that he never wanted to see me again." And Hill never did see him again because the man leased a truck, declared himself in the trucking business, and left the state.
In one sense, he did Hill a favor -- out of sight, out of mind. Several other of Hill's bankrupt customers aren't as kind. They still live in Boise and Hill regularly sees them around town. One drives a new Cadillac and others live in expensive houses. Hill can hardly bring himself to talk about them. "People who file for bankruptcy and then keep their fancy cars and houses," Hill says, "prove to me that they didn't really try to save their companies. They weren't committed wholeheartedly to their business. I think that a business owner should be forced to liquidate everything he owns to make sure all debts get paid."
Hill admits that he's begun to wonder just how many people think like he does. But in the end, it doesn't make any difference, Hill says, because he doesn't intend to change his mind. "I'm a conservative man," Hill says. "I believe in things like integrity and responsibility. I guess if I had to choose one goal, it would be to build a company that's well thought of, and if it gets big along the way, that's fine."
Hill's story has no ending. Even now, Hill and seven other people at Western Wholesale are struggling to keep their company alive and then to make it grow again. Hill's been experimenting with higher-margin products and he's been studying business opportunities in solar energy. Most recently, he reports that he thinks his basic wholesale business has begun to turn around, although he's not sure. But he is sure of one thing. "I'll never declare bankruptcy," he says. "I'd sell my house and my car, everything, but everybody would get paid. If I couldn't start another business to pay off debts, well, I can always get a job, can't I?"