How the Four Seasons Apply to the Construction Industry
We are all familiar with the four seasons (Spring, Summer, Fall, Winter), right? But have we considered how the same type of seasonal cycle applies to our business? What should when do when it does? Well that is the purpose of this article…to use something we all know of and are familiar with and use it as a tool to educate others how it affects the business cycle.
I recently was invited to attend the “Billionaire Tour” put on by Brad Sugars, founder of Action Coach and several other startups. My local Action Coach and congregation member, Steve Goranson, invited me to this event in order to help me to help my business thrive. I am very grateful Steve thought of me in this regard and want to take this opportunity to publicly thank him.
Mr. Sugars started at an early age on the path of success, when he discovered that “Learning is harder than earning.” Brad spoke of many things with much depth and meaning, one of which I want to share with you today. While I take no credit for this as an original idea, I feel that this concept can help many people be aware of the cycle as it pertains to the construction industry. As a believer in action who practices “Pay It Forward“, I feel compelled to relate this to those with a large enough attention span to read it and a mind open enough to absorb it.
The four seasons were used as part of Brad’s lecture and how they applied to the business cycle. In other words, how the rich get richer by knowing when to buy and sell. He says that “the four seasons apply to each and every business and they come once every 7-10 years.” After digesting this thought and reading this article, I challenge you to go back and look at the history of your industry and try to prove him wrong. I certainly did and it was astounding just how right he was!
Ah yes, summer is here. We are sitting on the beach or by the pool in our shorts without a care in the world. We are very comfortable what we are doing and never want it to end. We get a nice golden tan sitting in our flip-flops with our cold beer in hand. We enjoy hot dogs and peanuts at the baseball diamond and cheer on our favorite slugger.
The business cycle of summer is similar when:
- Consumers are buying anything and everything
- House prices escalate and are staying on the market a mere 30 days or less
- Lot prices are up
- Gas prices soar
- New businesses are started
- Unemployment rate drops
- New constructions is going up everywhere
- Banks are lending money to those whose debt to income ratio may be stretched already
In other words, money is flowing like crazy and no one wants it to end. No one thinks it will end. Hmmmmm kind of sounds like 2004-5 in the housing industry, does it not?
Fall arrives. School starts back up. Football season begins. The leaves change to beautiful, vibrant colors and start falling off the trees. It cools off a bit (or more than a bit, depending on where you live). You break out the trusty old rake which has not been used in several months. You sigh that summer has ended, but you prepare the camping gear anyway.
The business cycle of fall is similar when:
- Banks are lending money with no down payments
- Banks are lending money for more than 100% of appraisal value on homes
- Families are qualifying for loans for more than they can repay
- House prices are just downright insanely overpriced, but are selling anyway
In other words, money is getting silly. No one thinks ahead. The average American living at or below the poverty level per societal norms can finally get that loan for their own home. Hmmmmm kind of sounds like 2006-7 in the housing industry, does it not?
It gets cold. Green, grassy lawns turn brown. Snow falls. Lakes freeze over. We bundle up in layers of clothing and sit in front of the fire. Hockey season goes in full force. We have to dig out our car from the overnight snowfall just to be able to get to work in the morning.
The business cycle of winter is similar when:
- Things freeze up at the bank, borrowers are scrutinized and they won’t lend money without a large down payment
- Houses are not selling after 90+ days on the market
- Gas prices drop
- The government with a giant national deficit comes to the rescue of poorly managed corporations to “bail them out”
- House prices fall sharply
- Local businesses begin to close up shop
- Shopping centers sit half empty
- New construction is going up in the traditionally strong markets and very little elsewhere
In other words, money is very tight. People get cautious. The rich folks with lots of money are buying low so they can “weather the storm” and sell at the outset of summer again, as they have the capital to be able to do so. Hmmmmm kind of sounds like 2008-12 in the housing industry, does it not?
The snow melts. The grass shoots up and turns green again. Flowers begin to blossom. Folks break out their golf clubs and prepare for some early mornings.
The business cycle of spring is similar when:
- Banks begin lending again, although cautiously
- Housing market levels off
- New business open and flourish
- Some of those empty shopping center owners begin to get new tenants
- Construction starts rise
In other words, recovery begins and hope starts to show up. Confidence starts to return. Houses begin to be built again. Hmmmmm kind of sounds like 2013-present in the housing industry, does it not?
You see, somewhere between fall and winter in the business cycle, the snow falls. The bubble pops. The wealthy business man (ever wonder how he got that way?) knows this and is waiting for the signs so he can make his next small fortune. As business revenue & values drop and houses come down in price, he buys everything he can. He has the capital to be able to sit on his investment for a while. When summer comes back again, he will mark up the price and sell it and invest his money in something liquid so that when fall approaches again he can start the cycle all over again.
Brad Sugars put this in such a simple, metaphorical sense that almost anyone can understand it. The key is what? To pay attention! Get ready for summer very soon folks, as we are in the springtime now in the construction industry. I challenge you, right now, to go back in the history of your industry and look at what season you are in. Just do yourself a favor…pray for an open mind before you do!
Christopher Gould – President
Gould Design, Inc.