There is a scene that is attributed to Law School professors dating back to the 1930’s, telling students to “look to your left and then look to your right.  By the end of this year, one of the two will no longer be in Law School”.  In other words, if you don’t put in all the required effort, you just aren’t going to make it.

The business that you took over from the prior generation is very different from the one you run now, and the business that you might be handing down to the next generation will be even more different.  Changes have been occurring over the decades and are now occurring at a much faster pace — if you don’t put in all the required effort, you just aren’t going to make it.

In any business, in any industry, the “3 legs” that are required to support a business are Sales, Operations, and Finance.  Sales can include sales, marketing, customer support and retention, data analytics, social media, etc.  Operations includes “everything you do” to serve your customers.  It can be producing cars and it can be developing software.  In our industry, it is primarily delivery of fuels and the installation and servicing of heating and cooling equipment.  Finance includes everything from budgeting, analyzing, reporting, banking, credit, hedging, and more.

For the past two decades, we have seen many factors that slowly and notably impacted all three:  Sales transitioned away from radio and mail to social media and email.  Operations were impacted by back-office systems, onboard computers, and remote monitors.  Finance was impacted by price volatility and varying interest rates, often stretching financial capabilities.  All of this happened, during a slow and steady groundswell (mostly by politicians and rarely by customers) towards “greenification”.

Over the past three years we have had not one, but two “once in a lifetime” challenges that have accelerated, well, EVERYTHING.  The first, COVID-19, shook the world to its core.  Shelter-in-place orders lead to an abrupt cessation of demand for many products and for a severe shifting of demand for many others.  Our industry grappled with home equipment that we could not install and the hardships of PPE just to make deliveries and service existing customer equipment.  Bouts of Covid-19 sidelined service techs, drivers, and employees, industry-wide.  It was a dark time without precedent for anyone living in 2020.  Lives were lost and economies teetered on the precipice of collapsing.  Our industry and its “essential services” took some time to acclimate to the realities of 2020, but then in some ways we thrived.  People not only heated their homes, but they were home more and were using more fuel – and that fuel was very affordable.   Prices collapsed, volumes were steady, receivables were low, and PPP money was like manna from heaven.

During the Covid years, and the incessant “next variants”, the drive towards “remote-everything” took hold.  If you were not using technology to improve your business or your personal life, you were being left behind.  Why go to a store?  We’ll deliver it to you.  Why go to a restaurant?  We’ll drop off the food.  Man’s ability to adapt and accelerate change and innovation led to a big focus on consumer behavior.  What they liked, why they liked it and how they liked it.  Suffice to say that “the old way” was not “the new way”.  Everything needed to be more efficient – online experiences, billing, customer service – automated, of course, service response times – and, while the costs related to technology tend to drive overall costs lower, any industry that was (or is) heavily dependent on manpower and machines had a marked jump in their costs to operate.

The not-so-surprising result of all the stimulus packages offered by governments around the world (a/k/a giving away taxpayer money and going into debt for the foreseeable future), along with the pent-up demand caused by month after month of supply-chain issues, started an inevitable march towards rising prices (inflation) and unaffordable housing and car markets.  We didn’t like it when we had to wear masks everywhere, but at least money was cheap and readily available.  That was all starting to change, and then we got our second hit…

This past spring was “Once in a Lifetime II”.  Without rehashing the leadup to the Russian incursion (polite way of saying “unprovoked attack”) of Ukraine, including a lot of pundits saying, “nah, they won’t ever attack Ukraine, and turn the world upside down”, they DID attack – and the world has been trying to regain its footing ever since.

Instead of “Covid-time” collapsing oil prices with inventories brimming with product and keeping prices low, inventories emptied out as “backwardation” hit oil prices – this happens when spot prices of a product are more expensive than “dated” or deferred prices for a product.  In that case, there is not only no incentive to store product in inventory (in our case, tanks) for future delivery, but there is actually a financial penalty for doing so.  Tight supplies, war, inflation, energy policy (mis)management, and other things all collided in the spring, bringing with it the largest price spikes and “basis blowouts” that we have seen in…well, forever.

So, will you be the one on the left of the one on the right?\

With all the expenses being higher and customers being savvier what can you do? …

Sales – if your customers cannot rely on you to have their backs, they will not remain as your customers.  Some of your competitors might have stopped offering pricing programs and they will pay the price in attrition.  No one should suggest that pricing programs are inexpensive, but if this is a one-off year and prices will return to “normal” (however you want to define that), it would be great to have kept your customers.  But if this is our new reality, we need to adapt.  If not, what is the value that you provide to your customers – and it needs to be more to the modern customer than the quote from a long-term customer praising you for showing up in the middle of the night over a holiday weekend when their equipment stopped working.

Finance – Cash is king.  Access to cash is required.  Current supplier lines and receivable lines of credit might not cut it if customer bills are 100% higher than last year and “average days outstanding” increases from 49 to 69 days.  The guys behind the scenes doing all the financial planning need to get it right – hedging, cash-flow, supply agreements and differentials, budget billing, etc.  You can’t “do the best you can, and then find out how you did”.  You need data, and lots of it.  You can’t fix the month of December if you close your December books on the 20th of January.  You need to know, DAILY, where you stand relative to your budget (yes, I am assuming that you have a comprehensive budget in place) on sales, margins, receivables, credit outstanding, etc.  There is some debate in the industry about whether we have moved from a Seller’s Market to a Buyer’s Market.  There seems to be some evidence that it has happened, especially with the cost of money going up and profitability certainty often tied to “how high can I price my product”.  The “on your left or on your right” opportunities are going to arise – sooner than you think – and you need to be prepared to act (or be prepared to lose the opportunity).

Operations – at some point, your customers are going to want to stop paying increasingly higher prices simply because your costs are increasing.  That might happen on its own, or if might happen because one or more of your competitors found that they can generate the same profit margins, with LOWER sales prices, by lowering operating costs.  We are in a world where everyone has access to data.  That data doesn’t only tell us what has happened in the past, but what may well happen in the future.  We use K-factors to predict forward consumption.  We use Waze to give us the best way to get from “here to there”.  What we don’t do well enough is take the information (that is available), the processing speed (that is available), and the technology (that is available) and incorporate it into ways to lower operating costs.  We are too busy trying to hire, retain, and pay drivers that we don’t have the time (or patience) to look for ways to not need so many drivers.  We all love trucks, but we don’t spend enough time wondering if there is a better way than having 80% of the fleet sitting idly 70% of the year.  There is no technology, no program, no algorithm that is smarter than you are or smarter than your dispatch team, or your Back-office system.  The only thing that technology does better is that it is faster.  MUCH faster than you can ever be.  That is why you do a Google search to find sneakers.  That is why you do your banking online.  That is why you use Expedia instead of calling each airline.  The world of technology in our industry is waiting to take your knowledge and partner it with proven results.  You just need to be willing to plan that transition to the next generation and not be the company that technology passed by.

If you think that your company has a specific set of circumstances that will prevent you from being subject to this risk OR if you believe that this is part of “the writing on the wall”, please shoot me an email and let’s set a time to discuss your particular challenges or opportunities.

Written by Phil Baratz