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."
