Behind the Scenes at Ganahl - American Business Media

Set Shot: Ganahl Lumber CFO John Ganahl (left) and
president Peter Ganahl have led their family’s lumberyard
since their father’s death in 1973. They’ve been
the driving force that has made Ganahl one of the
nation’s premier construction supply dealers.
Behind the
Scenes at
Ganahl
Southern California’s Ganahl Lumber has posted
annual operating profits for nearly 30 straight years.
How? It’s all about the performance.
By Craig Webb
PHOTO: TIM RUE / WWW.TIMRUE.COM
f you want to play golf Ganahl style, bring
your wallet.
You needn’t carry much cash, but
when you tee up like Peter, John, Mark,
or Pete Ganahl do, you can expect a
wager on the next hole or the entire round. The
drive to not just do well but to compete is an integral
part of their character. And with their singledigit
handicaps, they’ll give you quite a test.
“When me, Mark and dad play golf together,
nobody gives an inch,” says Pete, one of Peter’s
sons. “Peter has the best swing,” says Mark,
another of Peter’s sons, while Pete “does the big,
humongous shots. I just get the ball in the hole.”
And though uncle John doesn’t play as often, his
memory is so sharp he can recall every shot of a
round he played years before.
Risk. Reward. Putters. Plywood. It’s all the
same for the Ganahl family and, for that matter,
just about everyone who ends up thriving at
Ganahl Lumber, the Orange
County, Calif.-based construction
supply juggernaut
that is ProSales’ newest
Dealer of the Year.
“I don’t have a corner on being successful,”
CEO Peter Ganahl says. “I’m just competitive
enough to think that in three years I’ll beat you.”
Peter smiles when he tells you that, not in a
cocky way but because he’s by nature upbeat. But
there’s steel behind the smile. Here in supposedly
laid-back Southern California, amid the palm
trees and sunshine, Ganahl has built a culture that
emphasizes individual freedom, discipline, and
self-motivation to an extent unseen at most other
lumberyards, particularly during this downturn.
Elsewhere, as housing tanked, many dealers
protected their sales reps by boosting their base
salaries. At Ganahl, the pay structure was skewed
even more to favor top producers. Elsewhere,
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2011 ProSales Dealer of the Year Ganahl Lumber
Anaheim’s Angels:
Mark Ganahl (left)
took over recently
as manager of
Ganahl Lumber’s
flagship Anaheim,
Calif., yard. He
succeeds Jim Taft
(center), who retired
in December
after four decades
with the company.
Another
relatively new
face in Anaheim
is Pete Meichtry
(right), VP for
merchandising,
purchasing, and
advertising. He’s
the first executive
Ganahl recruited
from outside in
decades.
dealers pruned staff slowly and based
on seniority rather than talent. At
Ganahl, the cuts came far quicker and
were based on merit. Elsewhere, other
big dealers closed yards. Ganahl, in
contrast, bought land in Pasadena and
plans to open a new facility this year.
There’s one other big difference:
While many dealers are awash in red
ink, Ganahl has posted an operating
profit during every year of this recession—just
as it has done for nearly
three decades’ worth of housing booms
and busts. Today it’s among the 20 biggest
LBM operations on the ProSales
100, with 2009 revenues of $166 million
from nine facilities. It should finish
2010 with roughly the same revenue.
Since 2000, its annual operating margins
have ranged from 7.2% to 12.5%.
Perhaps one reason why Ganahl
has churned out profits during both
boom and bust years is that Peter
doesn’t view them as fat and lean times,
but rather as the “The Go-Go Zone”
and “The Opportunity Zone,” respectively.
From Ganahl’s corporate headquarters
a mile east of Disneyland, The
Happiest Place on Earth, this cheerful
warrior believes there’s never a bad
time to make money.
And like Disneyland, the best stories
about why Ganahl succeeds often
are behind the scenes, starting with a
decades-old backstory that in many
ways has shaped the present operation.
Young and Oblivious John
Ganahl Jr. still gets misty-eyed when
he recalls an event and a conversation
with Peter in 1973 that changed his
life’s path.
In those days, Ganahl was a twoyard,
40-person operation run by John
Ganahl Sr., the type of
executive who kept all his
pencils neatly sharpened in
a row and who made all the
decisions. Cash was so
tight there were times John
Sr. had to collect on a debt
before the company could
make payroll.
Peter, the second son,
had been working in
Anaheim for five years
after getting a degree in
forestry. John Jr., the elder
son and captain of his
high school’s championship
football team, was
away enjoying seasonal
jobs as a ski patrolman and river rafter.
Then John Sr. collapsed and died.
Peter, just 28 at the time, suddenly
found himself in charge. Peter called
John Jr. home, and together with another
“We are a
meritocracy,”
Peter Ganahl
says, “where
people earn
money, respect
and status
for what they
deliver and not
for seniority,
title, or last
name.”
brother, Andrew, they discussed
the lumberyard’s future. John Jr.
quit his other jobs and joined the
Ganahl staff.
The Ganahl brothers found
themselves struggling to survive
at a time when more than 120
other lumberyards were competing
with them in Southern
California. At one point, Peter
had to nudge brother Andrew
out of the business because he
couldn’t perform at the level
required. At another, Ganahl
took what became one of its
most far-sighted moves—creating
an employee stock ownership
plan, or ESOP—simply
because it was short on cash and
figured that creating an ESOP
would reduce its tax bill.
In 1978, Ganahl rolled the
dice again when it went deep into debt
to a private lender—after failing to get
a bank loan—so it could buy what is
now its 17-acre Anaheim property at a
price that was several times larger than
its annual revenue. It took until 2005
to pay off the loan.
“We had a sense of manifest destiny”
regarding the Anaheim expansion,
explains John, the company’s chief
financial officer. “There
were others who said
‘You’re effing nuts.’ But we
were in our 30s. I never had
a sense of betting the farm,
though in hindsight it was.”
Outsiders say Ganahl
succeeds in part because its
two leaders view things differently.
“John’s the detail
guy, incredibly organized,”
says Bill Hayward, president
of Hayward Lumber
in Monterey, Calif., and a
longtime colleague—and
competitor—of the Ganahls.
“Peter has the bigger picture,
the broader vision.
Together, that’s true synergy.”
And as the company expanded, it
continued to embrace a multiplicity of
backgrounds and viewpoints. Buena
Park store manager Chad Kidder is a
PHOTO: TIM RUE / WWW.TIMRUE.COM
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2011 ProSales Dealer of the Year Ganahl Lumber
Cruise Control:
Ganahl Lumber
gives managers
enormous leeway
to run their operations
as they see
fit. You can spot
the differences
when you visit
the Buena Park
yard, managed
by Chad Kidder
(left); the Corona
yard, which Mike
Shumaker (center)
recently took over;
and the Costa
Mesa yard, run by
Brad Satterfield
(right). They’re
shown on bikes
in the Anaheim
yard, which at 17
acres can take a
while to navigate
on foot.
Nebraskan with a college degree in
philosophy, while Luis Rojas, the new
Laguna Beach store manager, is a local
who joined Ganahl out of high school.
By the late 1990s, the Ganahls were
much wiser but no less audacious.
That’s when they acquired the fourlocation
Barr Lumber chain, doubling
the company’s revenue in just two
years. Staffers had to convert Barr’s
four yards to Ganahl’s computer system
in just 30 days, a challenge that has
hobbled many similar takeovers. The
company met the deadline, and in turn
found itself transformed.
Opportunity—and Risk Before,
the company really was about one
yard—Anaheim—and some minor
branches. But with the Barr acquisition
came more equality among the yards
as well as more, and more specialized,
employees. That fostered the evolution
of a performance-driven mentality
that might best be called disciplined
entrepreneurship.
The discipline part reveals itself in
what Ganahl has chosen not to do. It’s
not in multiple markets. It doesn’t
judge success by market share. It
avoids buying property when the
market is hot. Until it launched
a test recently, it didn’t dabble
in installed sales, and its showrooms
are modest at best.
What Ganahl does possess
in spades is attention to detail
and a lot of motivation—financial
motivation, particularly—to
help the company make money.
Branch managers get to
stock and run their stores in
whatever way they believe will
generate the greatest profit—and
in high-profit years, the annual
profit-sharing bonus can account
for 75% of a manager’s pay.
(On the other hand, they have to
make capital improvements out
of their own store’s profits.)
Similarly, sales reps are free
agents when it comes to negotiating
prices. They even can sell
at below cost if needed, but since
they’re compensated based on
gross profit, there’s scarce motivation
to do so.
All told, roughly 15% of all Ganahl
staffers have pay plans that
are tied to profit and loss
statements. And the incentives
don’t stop there. Gate
guards can make hundreds of
dollars extra per month by
spotting errors. Collections
officers get monthly rewards
for roping in recalcitrant
payers. (Only 0.24% of all
AP dollars were written off in
2009, and in 2010 the collections
officers took in $78,000
more than was written off.)
All non-management people
are eligible for bonuses based
on company profits. And the
ESOP plan means every
vested employee has reason
to care about the company’s
long-term bottom line.
But there’s a flip side to
that coin, one that probably
has an even greater influence
on the company’s culture.
Base pay for managers and sales
reps is so low most cannot survive on
that alone, so when bonus dollars
evaporate, those folks could quickly
end up eating hot dogs every night.
OSRs not only see markedly fewer
commissions in hard times, they can
lose virtually all of what they earned
if the customer doesn’t pay the bill
within 90 days. And when the ratio of
labor to gross profit is one of your company’s
key metrics, there’s powerful
motivation to cut jobs fast. Ganahl’s
workforce today is about 40% smaller
than it was in 2006, and in some
branches half the staff was laid off.
“Part of Peter’s philosophy is that
when you cut, cut fast,” says Pete
Meichtry, Ganahl’s vice president for
merchandising, purchasing, and advertising.
“It’s a business, after all.”
Clearly, Ganahl isn’t the kind of
place that tries to overload the lifeboat
when storms hit. There’s an implicit
understanding that employees are
responsible for their own well-being by
salting away bonuses in the good years
for use when times get lean. And by
pushing merit-based pay even more in a
recession, as Ganahl did, the company
drives home the need to hustle
during hard times.
“The fact that we didn’t
M O M
Ganahl
leaves the
lower-priced
production
home
market to
others and
instead
focuses on
the folks
who cater
to MOM—
mountains,
oceans,
and movie
people.
make it easy to sell less and
be comfortable helped us,”
notes Jim Taft, the recently
retired Anaheim manager.
This risk/reward attitude,
what Los Alamitos yard
manager Tom Barclay calls a
“gross profit state of mind,”
is one of Ganahl’s defining
traits. It’s such a powerful
mindset the company often
doesn’t need to weed folks
out—most leave on their
own. It also accounts for
Ganahl’s tight, team-oriented
attitude, one that comes
when people of like minds
march in the same direction.
Or as Kidder, the Buena
Park manager, puts it: “Once
you drink the Kool-Aid, you
feel part of the family.”
PHOTO: TIM RUE / WWW.TIMRUE.COM
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2011 ProSales Dealer of the Year Ganahl Lumber
They Know
Wood: Southern
California’s Ganahl
Lumber draws
remodelers and
builders in part
because of the
quality of the
wood it sells.
Helping engineer
those sales are
Tom Barclay (left),
general manager
of the Los
Alamitos yard;
Pete Ganahl (center),
a top outside
sales rep based in
Los Alamitos; and
Bill Shaw (right),
general manager
of the Lake Forest
store.
In a primer to managers called
“The Intelligent Lumberman,” Peter
laid out many of the company initiatives
designed to encourage a performancedriven
culture. “These practices could
be modified in the future,” Peter wrote,
“so long as we make it very clear that
we are a meritocracy, where people
earn money, respect and status for what
they deliver and not for seniority, title,
or last name.”
This holds even when your name is
Mark Ganahl and your dad runs the
place. After several years of managing
the Corona yard, Mark has just taken
over the Anaheim headquarters from
Taft. That would seem to put Mark on
track to lead the whole company one
day. But every senior executive—and
Mark himself—stressed that he will
have to prove himself at Anaheim for a
few years before he could be considered
for a move upstairs.
Life in the OC Detractors might
sniff that the company’s success is an
accident of geography—that today’s
Ganahls are blessed descendants of
Austrians who came to Los Angeles in
1884 and Anaheim in 1904, times when
you still could find orange groves here.
To some extent, the skeptics are right—
Ganahl Lumber is fortunate. Its core
trading area of Orange County is ringed
by mountains to the east, the military’s
Camp Pendleton to the south, the Pacific
Ocean to the west and relatively unfashionable
parts of Los Angeles County to
the north. Packed into an
area that’s less than 40 miles
long by 20 wide reside more
than 3 million people with
median incomes 50% above
the national average. Hanley
Wood Market Intelligence
estimates the median existing
home in Orange County
sells for $440,000.
But there’s a dark side
to that scene. Orange County
was the epicenter of the subprime
mortgage business,
whose collapse helps explain
why the county has lost
175,000 jobs—roughly 12%
of its total payroll—since
2006, and has seen a 70%
fall in building permits.
Conditions are even worse
next door in Riverside
County, where Ganahl has
one yard. What was one of
the country’s hottest markets
has suffered an 86% drop in
building permits since 2006
Ganahl Lumber’s
logo is inspired
by a set of giant
band saws that
can be found
at five of its
stores in Orange
County, Calif.
The saws, each
more than two
stories tall, had
been used to cut
lumber at mills
in the Pacific
Northwest from
about 1900
to the 1960s,
when they were
retired from service
and brought
to Southern
California.
and a 14% drop in employment. And
Ganahl competes for DIYers and
smaller pros with at least 40 Home
Depots and Lowe’s stores.
“This isn’t lotusland,” says Lonnie
Schield, who tussled with Ganahl while
he ran Terry Lumber and after Terry
was acquired by Stock Building Supply.
“This is a tough, tough environment.”
Ganahl might be the only notable independent
left in Orange County, but it
still has Stock and ProBuild to contend
with in surrounding Los Angeles,
Riverside and San Diego counties.
Given those big dogs, Ganahl
decided to avoid competing in the
lower-priced production home market
and instead focus on the folks who
cater to MOM—mountains, oceans,
and movie people. That philosophy
has its roots in a branch Ganahl ran
for decades in Lake Arrowhead, a popular
getaway for Hollywood stars in
Raymond Chandler’s day. Today, MOM
is shorthand for remodelers (who
account for 40% of Ganahl’s revenue)
and small builders (another 20%) who
work on high-end homes. Ganahl stores
are big on moulding, doors,
windows, and finishes.
Because Orange County
is so densely populated and
most Ganahl yards are within
10 miles of each other, these
smaller pros tend to pick up
their materials rather than
have them delivered. Viewed
from above, most Ganahl
yards look like beehives in
the morning, with contractors
running all over the back
lots to pick up studs and grab
boxes of nails. (Thus the
importance of gate guards.)
Such a self-service arrangement
helps Ganahl because
it reduces the need for trucks,
drivers, and gas.
Planning for Success
Ganahl’s belief in LBM’s
feast-and-famine cycles is
baked into many of its practices.
In the Go-Go Zone a
few years back, it paid off
debts rather than take on new
PHOTO: TIM RUE / WWW.TIMRUE.COM
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2011 ProSales Dealer of the Year Ganahl Lumber
The Intelligent
Lumbermen
In 2009, Peter Ganahl wrote a guide
for senior managers called “The
Intelligent Lumberman” that sets
down the company’s guiding
principles (qualities that should
persist) and lists current successful
practices (things that can change
over time). Here are a few of both
from this Dealer of the Year:
Good housekeeping “is a state
of mind and a sign of a profitable
and well-run operation.”
Stay “small” in the eyes of
customers, employees, and the
surrounding community. But Peter
adds: “I believe our company can
still have a ‘small’ feel at $600
million.”
Sell shares in the company
only to people who run it. And sell
the shares for real money, not for
stock options.
Gate guards receive a bonus if
they spot errors, regardless of
whether those mistakes hurt or
help the company. Some sharpeyed
guards at busy yards can take
home an extra $600 a month.
Ganahl includes legal costs
when it calculates its losses as a
result of bad debts.
Sales reps get a “spiff” if their
customer pays on time but lose
virtually all their commission if the
bill goes over 90 days past due.
Ganahl serves as its own
internal two-stepper by purchasing
certain products in bulk, warehousing
them and then holding them
until the branches need the
product. When it does, the
wholesale division sells them at
slightly more than original cost. This
helps protect the company should
a sales rep—who enjoys enormous
control to set prices on bids—try to
sell those goods at a rock-bottom
price.
Company-wide quarterly and
annual bonuses are given out
based on the company’s financial
performance, thus keeping
everyone fixated on income.
“Always make ethical
decisions … Period.”
Ready To Move:
Luis Rojas (left)
has just taken
over management
of Ganahl’s
Laguna Beach
store from Barrett
Burt (center),
who is getting set
to run Ganahl’s
newest facility,
in Pasadena.
With them is
Bill Ferguson
(right), who manages
Ganahl’s
Capistrano Beach
facility.
loans. It also shared the wealth by
adjusting compensation plans so that
staff could get even bigger bonuses. But
when the crash—er, the Opportunity
Zone—came, those same pay plans
caused an automatic drop in compensation
costs, thus limiting the impact of
what has been a 44% decline in revenue
since 2006.
Other practices insulate the company
at all times. One example is its
policy of not paying any bonuses until
the operating profit tops 4%, something
Ganahl has done with ease for at least
the past 11 years. “Peter and John aren’t
giving away money unless they’re making
money,” Schield notes.
Another insulator can be found in a
warehouse adjacent to the Anaheim
yard, where the buyers work. That’s
the home of a unit called Ganahl
Wholesale Distribution, or GWD.
You can think of GWD as the bulk
buyer of hardlines for all of Ganahl’s
branches, employing its combined purchasing
power to snap up deals at the
Do it Best and Orgill shows. Roughly
half the SKUs it stocks are show buys.
But you also can view GWD as the
company store, because it requires the
branches to restock their hardlines from
it, and when GWD “sells” those goods,
it does so at a slightly higher price than
what it paid. That helps add a few pennies
to the company’s bottom line even
if an OSR slashes the usual sales price.
The pallets of GWD goods rest
adjacent to another room that figures
in Ganahl’s success. It’s filled with
product displays in which vendors are
invited to create planograms for the
stores. Signs above some gondolas
proclaim: “100% shoppable at 72
inches,” and “Strive for $2,500 in
sales, $1,125 in gross profit. Every
linear foot of gondola generates these
numbers in every store every year.”
“We have high expectations for
how our planograms will perform,”
says Larry Gray, GWD manager and
Ganahl’s director of advertising.
Ganahl takes pride in how it sweats
lots of operational details, from keeping
the lumber stacks neat to striving for
an on-time, in-full delivery rate of at
least 98%. “Their execution—everything
from having the bid correct, shipping
the orders on time without back
orders—was great,” Schield says. “One
of our salespeople could never [tell a
customer] ‘Well, they don’t get the lumber
to you on time.’ They were good.”
One reason why Ganahl managers
were so quick to cut staff a few years
ago is because they are urged to keep
labor costs at 30% to 35% of gross
profit; at 40%, it’s time to sharpen the
knives. Ganahl aims to get no more
PHOTO: TIM RUE / WWW.TIMRUE.COM
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2011 ProSales Dealer of the Year Ganahl Lumber
than 10% of its revenue from production
builders, and sets the same 10%
cap for DIY sales.
Thinking Outside County
Lines There are benchmarks for branch
locations as well: high-traffic streets,
good access from both directions, minimum
130,000-square-foot size, convenient
access for will-call customers and,
above all, the MOM factor. Once the
downturn began, Peter put all these
factors into play in searching for a location
that would enable Ganahl to return
to Los Angeles County. And thanks to
General Motors, he found it.
GM’s bankruptcy in 2009 included
the elimination of franchises around the
country. Among them was a GM and
Hummer operation in Pasadena, home
of the Rose Bowl game and Rose
Parade. Ganahl bought the buildings
and currently is facing the usual renovation
challenges. The project’s construction
manager is Patrick Ganahl, Peter
and John’s youngest brother.
Walking through service bays,
“I believe we’re doing more things right than our competitors.
The execution is better and the focus is better,” says Jim Taft,
the recently retired Anaheim yard’s manager. “At the same time,
I laugh because I know how much better we could be.”
Peter keeps quiet as Patrick and architect
Dale Brown describe how
Pasadena’s slow turn toward the nogrowth
movement is making it harder
to achieve their original plans. In even
tones, Peter explores construction
options that would help Ganahl avoid
some regulatory checkpoints, but he
also suggests a meeting with city officials—one
in which Ganahl could note
how too much red tape could cause the
cash-strapped city to lose tax dollars.
Through it all, Peter does more listening
than talking, more suggesting
than ordering. Co-workers say that’s
his way. “If Peter has an idea, he doesn’t
say, ‘This is what we’re going to do,’”
Barclay says. “Instead, he floats an
idea. And some ideas have been floating
for three or four years.”
Ganahl has long supported
what is now the Lumbermen’s
Association of California and
Nevada, particularly its Second
Growth group for young LBM
staffers. The association honored Taft
with the President’s Award at its convention
in November.
Ask Taft why Ganahl has succeeded
and you get a two-part answer. “I
believe we’re doing more things right
than our competitors. The execution is
better and the focus is better,” he says.
“At the same time, I laugh because
I know how much better we could be.”
So long as the Ganahls are in
charge, you can bet on that.
Circle no. 98