The first decade of the 21st century has been characterized by exhilarating growth only to be followed by the worst recession most businesses have ever experienced. In loftier times, it took little effort to get work and make money. Even when a job proved unprofitable, who cared? There was always the next job. However, while contractors who took that attitude may have survived, and possibly thrived, it proved not to be a strategy for long-term growth and success. Instead, what was needed then, and is particularly critical today, is a back to basics approach to business development and management.
Realigning success strategies
Among the basics are four key strategies that have proven effective over time. These are essential ingredients of success that work regardless of economic constraints:
- Use change orders effectively and profitably. It’s truly amazing how many contractors appear to be oblivious to the opportunity of issuing change orders or fail to make the process clear in their agreement with the general contractor or homeowner. That alone can be the difference between a profitable and a losing project.
- Know the firm’s available productive capacity and employ bidding strategies that take advantage of it. Don’t bite off more than your firm can chew, but likewise don’t undersell your capabilities because you’re afraid of not living up to them.
- Know the true costs of doing business. If costs are too high to bid competitively, drive them down. Do not just sit back and let costs drive the business down.
- Design sales presentations around the marketing principle that “the cost of doing business with me is less than the cost of doing business with my competitors.” Are crews on site when scheduled? Are the materials needed for the job on site at the appropriate time? Is there a minimal or nonexistent punch list? Can these items be quantified, therefore reducing the cost in the eyes of the prospect?
In the worst of times, when firms no longer have the luxury of choice and all projects become golden, the most basic, best practices such as these are essential to achieving a profit, or at worst, surviving the storm.
Accordingly, firms need to sharpen their focus on making money on each and every job. In addition, any remaining productive capacity should be put to a secondary use which will contribute at least something to overhead. Never settle for unbilled, idle time. Rather than feeling victimized by the economy, develop flexible pricing strategies. Always have second and third markets established that are capable of absorbing idle capacity.
Knowing the difference between profitable and unprofitable work, in turn, depends on daily metrics that are simple to gather and simple to understand, yet descriptive enough to feed profit information to the management team. Only spend a dollar if it will make two. A savvy business owner will never let go of a dollar if a greater return is not assured.
Finally, be relentless in the quest to drive sales forward, while simultaneously driving costs down—never stop marketing.Basics for running a tight ship Traditionally, owners in the construction industry have stressed basics such as quality workmanship customers can see and appreciate, and the completion of jobs on schedule and on budget. In addition, there are other best practices of good business management, sometimes forgotten, but just as important in both good and bad times:
- Ensure profitability. This starts with knowing how to develop an accurate, profitable bid and then monitoring costs based on the bid during construction. It also requires effective site supervision and project management. In fact, the skill sets of the project manager are directly proportional to the profitability of any construction project.
- Manage by key metrics. Every business owner needs a clear set of business goals, objectives, strategies and key metrics that indicate how healthy the business is. Key metrics differ from company to company, but may include: profitability (e.g., which jobs are profitable, which salespeople are selling profitable jobs); price point; marketing and sales (e.g., returns on investment of various marketing tactics and sales efforts); administrative variables (e.g., maintenance, inventory control, financial planning); key financial ratios; productivity; and material costs.
- Manage based on accurate, timely information. Don’t manage by looking in the rearview mirror of profit and loss statements but at real-time data on milestones, targets and timelines. Further, manage the performance of key employees based on the key metrics. An owner who thoroughly understands how the business makes money (think key metrics) will know the difference between employees who are making money for the company and those who do not perform.
- Ramp up marketing. That includes generating leads, increasing sales efforts and boosting close rates. Additionally, it requires a written sales and marketing plan, a superior sales team and a way of monitoring the effort of individual members of the team.
Change is hard
The concepts of what it takes to create and run a healthy business are not difficult to understand. But when success strategies of the past no longer work, it can be confusing and lead to denial rather than a willingness to change.
The market today demands an approach and skill sets that many business owners have forgotten or never learned. Because change is hard when you go it alone, coaching, mentoring or training can most effectively bring real change. It’s never easy to leave one’s comfort zone without the helping hand of a skilled “change artist.”
These are among the primary strategies a “change artist” would use to help an owner take control of the company and turn it around:
- Establish and manage by key performance indicators.
- Set up profit and expense controls.
- Budget thoughtfully and tightly.
- Manage cash diligently.
- Establish working capital requirements.
- Establish clear goals and objectives for key employees.
- Increase productivity through incentive programs for all employees. That includes team-based incentive programs, which reduce the need for supervisors to stand over workers. Team members hold each other accountable and work together to exceed expectations.
- Have a clear sales message that focuses on the prospect’s “needs,” not the owner’s “wants.”
Foundations for tomorrow
Hearing about the basics is not exactly music to a construction company owner’s ears. Deep down, most already know about these strong foundational elements, but it can be painful to be reminded of something one has forgotten. This reminder is not about blame. Rather, “back to basics” is a call to action. The market demands that construction companies focus on fundamental issues. This is really the equivalent of basic blocking and tackling. Those who have not implemented the requisite changes and yet have held on to their companies are at risk of getting clobbered unless they become lean and mean quickly.
No one can possibly lose by focusing on the basics. They apply to any business and are the prerequisites for success in any economy. Implement that solid foundation now and build on it with the new success strategies of the next boom.