10 Steps To Building A Successful Construction Company In This New Economy
For the last five years or so many construction business owners were operating their businesses in survival mode. Now, with the economy improving and residential construction activity picking up, many contractors will be looking to grow their businesses again. If you are looking to grow your business here is my list of 10 steps contractors should take to make the switch from surviving to thriving.
- Build your team. You can't do it all; no matter how much you try. Find the right people with the right attitudes, skills and personalities to be part of your team.
- Be ready to take advantage of opportunities for growth. Hire and properly train employees before you already need them and their required skills up and running.
- You are not the Energizer bunny! Make sure you have a plan for recharging your batteries and keeping up the motivation you will need to make your dream business happen.
Be the leader you need to be. Work on your leadership skills and make sure you understand the difference between leadership and management, and when to use one versus the other. Good employees want to be lead, not supervised.
- Be careful about and watch your overhead expenses. Many construction businesses failed during the recession because they could not cover the cost of the overhead they were committed to when volume and or gross profits dropped.
- No Wild Ass Guesses (WAG)! Know the costs of doing more business before you do more business so you can use the right markup to price your jobs profitably.
- Dip your toe in the water before you dive in. Before you actually increase your overhead costs test the marketplace you plan to work in to make sure you can sell at the increased pricing you'll need and can sell enough work at that price. Consider if you are in the right market to do business but also if you have the right marketing and sales skills in place.
- Don't be blind-sighted by increased job costs. If you like the idea of an extended backlog of work find a way to protect your planned profits from escalating costs. Labor and many material costs are expected to go up dramatically before the end of the year. Be sure to price your work for the actual costs you will incur at the time you produce it.
Know your limits. Do what you can yourself but get the professional help you need to do things right; to avoid costly mistakes, increase the likelihood of success and maximize the results for your all your efforts.
- Think things through first and create a written plan to guide you. Successfully growing your remodeling business or construction business takes much more than just selling more work and adding employees. Without a plan to commit to, business success might only be a short lived dream for you and your employees.
Increase the likelihood of your success
Be sure to build accountability into your business and your leadership. Share your plan and your measurables with someone who can and you will allow to hold you accountable to following your plan and achieving your goals. This could be a spouse, relative, business coach or a mentor. Make them part of your team and give them permission to be brutally honest with you when needed.
You can't do it all; no matter how much you try.
Hiring a construction or remodeling industry expert certainly can be expensive. Depending on the nature of the problems to be addressed the fees can add up quickly. However, compared to the money lost over time by not correcting or improving things that slow you down or increase project costs, years perhaps, the lost revenue and compromised profitability can far exceed the initial cost to fix the problem. Perhaps you could help your boss see the cost as an investment. To do this consider using a simple analogy from your world as an example to help get your intended point across. Maybe consider using the example of having a table saw. Sure you could do your job without one, but it sure would go a lot faster and come out a lot better, and at a much lower labor cost, if he made the investment in a good one sooner than later. And by doing so the labor savings alone would quickly cover the cost of buying the table saw. 
If you hear that objection it may be the truth. But you know what they say about the definition of insanity. Depending on your relationship with your boss perhaps you could ask what he has already done or will do different to get that profitable job. The positive news is that often times the business is actually already in pretty good condition. I find many construction businesses might only need a few tweaks and or new processes to make significant improvements. If the expert helps start with low hanging fruit the initial changes can often generate the additional money needed to finance additional changes.
Most construction business owners are thoughtful and kind people. They are also typically very busy and put in a lot of hours to help keep the business going and keep the employees working. If you see things that your boss doesn't, keep these considerations in mind. Choose a good time to share your opinions and offer your suggestions. Most importantly, do it with good intention and respect. I hope you have a boss who is willing to listen and will hear your suggestions. 
Second is that the supply chain is finally spending money again on marketing to and investing in their remodeling contractor customers. Although still not as busy as they used to be, trade shows this past year have grow in size again as more manufacturers and distributors are back participating at the shows. Also, since about early this past summer, the number of manufacturers, distributors, dealers and trade associations contacting me about speaking at their events has also dramatically picked up. The supply chain is once again spending money to educate their staff as well as their contractor customers, as a way to grow their businesses as well as their customers’. 
think sums things up
Hire and properly train employees before you already need them and their required skills up and running. 
Before you actually increase your overhead costs test the marketplace you plan to work in to make sure you can sell at the increased pricing you'll need and can sell enough work at that price. Consider if you are in the right market to do business but also if you have the right marketing and sales skills in place.
The changes Joe has made provide a better level of service and attention to current prospects and customers, and, at the same time, gives Joe the time and ability to also fully focus while meeting with new prospects for the first time. By sharing the workload with the right person and using the right process Joe has improved the service his company delivers and his customers are very happy. He says he now looks forward to working with new prospects as their calls keep rolling in.
Attempting to strategically ramp up staffing needs as the economy improves and get new employees acclimated before your business already needs to have them at high capacity will definitely be a juggling act. There is no better time than now to get that process started. Those contractors who use their past experience in this area and or the shared experiences of a mentor will have a jump on grabbing top talent. They will be the select few who are ready for the business opportunities that will come with an improved remodeling marketplace.
The great recession changed this scenario somewhat due to layoffs and downsizing. The surplus of unemployed field workers got as high as 27% for the construction industry during the recession. Unfortunately many skilled workers left the industry for other jobs, less physical jobs and or better job security. This has set up what is expected to be a major labor shortage problem for our industry as the economy and construction pick up again. Many contractors around the country are already reporting challenges finding skilled carpenters to keep up with construction demand. As the demand goes up, so will the wages that carpenters can demand to either stay at their current jobs or that other contractors will use to lure workers away to work for them.
If you plan to hire additional carpenters as your business volume picks up now is the time to put a plan together for not only finding, but also attracting good carpenters to work for your business and then to get them to stay with your business. The compensation package you put together should not only capture their interest, but also help them see opportunities for future growth and increased compensation if they are loyal and motivated.
The automobile industry uses a flat rate manual to determine the labor costs for auto repair services. The strategy they use is not to estimate the number of hours to do a certain task, but rather the typical actual cost of the labor to perform the task. A repair shop that uses flat rates pays their employees for what they accomplish, not how long it took them to do it. A construction or remodeling business could do something similar. Such a strategy could also help the business and the employees learn where to invest training to improve performance and stimulate wage increases for those who buy into performance based opportunities.
Building product suppliers who have high debt may not be able to finance the cost of increasing their inventories to keep up with the predicted supply and demand challenges as the economy improves. If this happens at your supplier you may find that many products, even common commodities like framing lumber, will be out of stock. Imagine going to the lumberyard first thing in the morning to get the materials you need to frame a deck or reframe that kitchen, only to find out you can’t get what you need. To keep working that day you might have to pay for longer lengths than you need, or might even have to drive to a different supplier in the hopes that they will have what you need so you can work that day. Remember, if you lose two hours chasing materials, in reality you also lost two hours of productive time on the job. That would mean you lost a total of four hours you could have billed your client for if the materials were already at the jobsite.
Lumber and building materials dealers who cut back on staff may also be challenged to help you sell to your customers. If you had a customer who wanted to see the door, cabinets or windows you recommend, will you be able to send them down to your local supplier to see the products they are looking for? What is the condition of the showroom? Is there going to be anyone there to make and take the time to meet with and help your customer? Will the person working at that dealer have the sales skills, product knowledge and knowledge about you and your business to help you make the sale?
I work with many companies in transition. The steps from being a “guy and a truck” to having an office and a bookkeeper and field employees are frequently challenging, but the milestones are pretty easy to identify. Ray the Remodeler used to work out of his house, but now he’s got an office. Bill the Builder used to pound nails, but now he does sales and supervises a crew. A less easily-measured but potentially even more important milestone is when the owner is able to recognize and maintain separation between himself (his personality, his idiosyncrasies, his strengths and weaknesses, his preferences, and his habits) from the company for the sake of the business.
Adding the trappings of a business (office, staff) without shifting attitudes about the business has held many owners back and limited the potential growth of their companies. As long as they see themselves as remodelers, rather than owners of businesses that deliver the service of remodeling, they risk seeing their businesses as extensions of themselves, reflecting their own strengths and weaknesses. They also tend to see their companies as being so unique that they can’t be run using best business practices.
Chase profit, not dollars. When owners start talking about how much their sales have increased, I remain unimpressed. Sales are nothing. Profit is where it’s at. Let’s say your volume is $600,000 in year 1 and $900,000 in year 2. A 50% increase, right? Wonderful, right? Maybe yes, and maybe no. If in order to sell and produce 50% more you had to hire a production manager, an estimator, and a salesperson and that caused a significant increase in your overhead, you could wind up with a lower net margin at the end of year 2. You might even end up with fewer actual dollars of profit to say nothing of the added stress of running more or bigger jobs. Know what numbers to watch, how to interpret them, and what to do to improve them.
Stop trying to do everything yourself. If you haven’t already figured this stuff out on your own, hire somebody who has helped hundreds of contractors understand their numbers, replace habits with systems, and achieve a healthier relationship with their business. Comments from my clients reveal that many contractors struggle with the business side of things. Would you like to move “…from being clueless & frustrated to confident and comfortable….”? Would you find it “…refreshing to speak with someone who actually knew what they were doing, understood what (you were) trying to accomplish, and just made it happen.”? Are you sick of being “…lost in a sea of numbers…”?
The best way to find out what will motivate team members is to ask them. While interviewing recruits or existing employees, find out not only what motivates them to grow, but also why. Connecting the “why” to the “what” can help get you, your business and that employee to where everyone wants to be much faster for two reasons.
Include in your record keeping not only the reviewer’s comments, but employee’s feedback about how well the company helps him or her to get there. If your process includes writing down what has been agreed to at this review, both the company and the employee will know what to do between now and the next review. You will also both know what you will be discussing at the next review. This helps minimize the typical fears experienced by both the reviewer and the employee when anticipating the next review meeting and what they should talk about during the next review. 
