The Design Builder's Blog

10 Steps To Building A Successful Construction Company In The New Economy

For the last five years or so many construction business owners were operating their businesses in survival mode. 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. 

10 Steps to successfully growing your business

1. You can't do it all; no matter how much you try.  Find the right people with the right skills and personalities to be part of your team.
2. Hire and properly train employees before you already need them and their required skills up and running.  
3. 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.
4. Work on your leadership skills and make sure you understand the difference between leadership and management.   Good employees want to be lead, not supervised.
5. 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.
6. Know the costs of doing more business before you do more business so you can use the right markup to price your jobs profitably.
7. 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.
8. Be sure to price your work for the actual costs you will incur at the time you produce it.   Labor and many material costs are expected to go up dramatically before the end of the year.   If you like the idea of an extended backlog of work find a way to protect your planned profits from escalating costs.
9. 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.
10. Revisit number one above.   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.  Make them part of your team.

One more thing; Make sure you are thinking about retirement

A recent study by the National Institute on Retirement Security found that the median retirement savings of households nearing retirement is just $12,000.   What would you think of a business owner, ready to retire, who only had $12K saved for retirement?  If you sell your work and services on price, consider that you are contributing to your customers' retirement funds at the expense of your own!

Money is made during the sale, not during production!

After Bad Experience At His Own Home, Contractor Shares Thoughts With His Employees

Guest Blogger: Tim Piendel is the Principal of GreatHouse Atlanta, a full service design/build remodeling firm serving north metro Atlanta. Reach him at tim@greathouse-atl.com or 678.352.1035.

Back story to this guest blog

Tim is one of my coaching/mentoring clients.  We have been working together to help Tim grow his business and put a plan in place so he can slowly reduce his day to day involvement by empowering current and new employees as his business evolves.   Tim shared the email below with me after sending it to his employees.  In the email Tim shares a challenge he had with a painting contractor doing work at his own home as a way to help his employees understand how GreatHouse wants to build and protect its brand.  With his permission I am sharing it with you.

Here is Tim’s email text.

ALL GreatHouse Employees and Subcontractors:

I just wanted to share with you an experience I recently had with a contractor since I don't want this happening with our jobs. It is my intention to stay successfully in business and I want you to be part of that success.

Here's the story…

Just recently I had some painting work done on my home. There were two parts to the project, a preparation and a completion. The contractor came to my home and performed the first part of the project but did a poor job. I pointed it out and gave the person a chance to fix it but I was given excuses. I talked it over with my wife and we fixed part of the project ourselves and called the contractor back to fix the issue. They came back and saw what a corrected preparation should be like but offered no apologies, just excuses. They finished the preparation fine after that, but I, as a homeowner had to initiate it. 

The next step was to complete the project. This was an exterior project so it was expected they would not be here when the rain had made completing the project impractical. However, there was no call. Kind of obvious, but still, a courtesy call is always welcome. The next day came and was ideal for completing the work. However, the contractor was a no show and a no call. This is unacceptable. Now, with rain coming in again, the project was delayed another week. At this point, as a homeowner, I am frustrated, mad, and have lost confidence in the contractor. This all could have been remedied with a simple communication. 

Lessons learned…

1. NO MATTER WHAT THE JOB, DO IT RIGHT! Shoddy workmanship always cost you more in the long run. Return trips always cost more in dollars and confidence.

2. DON'T MAKE EXCUSES. APOLOGIZE AND MOVE ON! A customer does not want to hear excuses; they just want honesty and closure. Besides, you'll dig yourself a deeper hole.

3. YOU CANNOT OVER COMMUNICATE!!!!!! Call, text, email…whatever is appropriate, but do so promptly and often.

4. AGAIN, YOU CANNOT OVER COMMUNICATE!!!!! When you don’t call to say where you are and they are expecting you, they are just sitting there boiling and waiting to pounce on you and make your job harder and unpleasant.

You may think that your job is only to complete your service or product but that is only part of it. We are PRIMARILY in the customer service business. We have fabulous clients! By the nature of our business, we are invited into people’s homes and we must respect their rules and timing. We must earn and keep their trust. They must have CONFIDENCE that we will complete the project correctly, on time and on budget. That's what we do.

Thank you for your time. As always, feel free to contact me with any question or comments. I want all of us to be successful. I am willing to help anyone that needs help.

'We are what we repeatedly do. Excellence, then, is not an act, but a habit.' - Aristotle

Thanks,

Tim Piendel

Guest Blogger:  Jeff Fierstein is the General Manager at Byers LeafGuard Gutter Systems located in Grass Valley California.  Jeff had posted a comment to a discussion I started at the NARI LinkedIn group.  The discussion was about a blog I posted titled: “Why Some Contractors Can Raise Their Prices But Most Others Can’t”.  I decided to use his comment as a guest blog, thanks to Jeff for allowing me to share this with you.

Contractor Gets Sage Advice From A Competitor About Selling At Cheap Prices

When I was a young man a competitor of mine, several years my senior, named Tommy O’Connell pulled me aside. He pulled a $100.00 bill out of his wallet and told me he always kept that bill in his wallet, “Never sell from an empty wagon” he said. I was young and didn’t much care for Tommy so I thought he was full of crap, but he explained that if you’re broke and need a sale too much, you’ll have a tendency to sell too cheap. That was actually sage advice. In this economy, there are many contractors that are living hand to mouth. Without the skills they require to sell their services at the price they deserve, they resort to “selling” a cheap price. They either don’t understand that to stay in business they need to include a profit, or simply cut corners and provide a sub standard job. This may be a good indication why an overwhelming number of home improvement contractors fail within their first two years of business.

“Never sell from an empty wagon”

In our early days, we would bid like crazy, leave bids on the doorstep, and wait for the mailman to come. The only thing that saved us from ourselves was our bid package was detailed enough to outshine the competition who was also waiting for the mailman.

We’ve all heard it, what got us here, isn’t going to get us where we want to go.

Today, the only way we would leave a bid on the doorstep is under duress. Sure there are exceptions to the rule but unless we get a chance to explain our bid in detail and ask for the business, we might as well not bid. We spend a great deal of effort to train our sales force how to build value and ask for the order. We know that there is competition in our field but generally find them easy to outsell at the price we need to be around tomorrow.

For those concerned about selling against contractors that sell too cheaply...

There is an ancient roman proverb that comes to mind; AQVILA NON CAPIT MVSCAS
“An eagle doesn’t hunt flies”

Have The Right Compensation Strategy For New Carpenters Before You Hire Them!

One of the benefits of the great recession was that as business slowed down businesses got rid of underperforming and or overpaid employees.  This article is intended to help those remodelers who had or may still have such employees.   I hope by reading this information they can avoid repeating the same mistakes again as the economy eventually improves.

During the boom times many contractors, trying to get enough field labor to keep up with volume demands, resorted to overpaying carpenters and other field workers just to get them on board.  Also, over time, many remodelers gave wage increases to these people just to keep them, either in fear of losing them and or because another business offered the employee more money.  Additionally, many employees received wage increases based on longevity, perhaps with little or no consideration for any actual advancement in performance, responsibility or productivity.  One could fault the business and or the economy for why this was happening, but certainly not the employees.  After all, if market demand stimulated increased wages, employees would be foolish not to pursue and take the increases.

Then the bottom fell out

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.

Finding, attracting and keeping the best carpenters will require strategic thinking

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.

This provides a great opportunity for remodeling business owners to get compensation and any future wage increases in line with actual performance, rather than continue using the subjective reasons so prevalent the past.  It should only make sense for a business to put a plan in place that properly compensates employees based on the value they bring to the business.  It also makes sense to put such a plan in place so employees will know how they can and when they have earned the right to expect increased compensation.

Buying a boat or getting married is not a good reason to give a carpenter a raise!

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.

If remodelers and other contractors continue to use purely subjective methods to determine compensation for field employees, they will be setting the example for and encouraging employees to also continue using subjective methods to assess their own performance.  If this plagued your business in the past it’s up to you to make sure it doesn’t happen again. 

Summary

Before you hire new employees or bring previous employees back into your business take the time to think out and document compensation plans based on merit.    If you introduce such a plan to job candidates it could even act as a filter.  Top performing candidates will be attracted to such a plan, but those who can’t or won’t perform will likely find somewhere else to work.  After all, as a business owner your compensation is based on actual performance.  Why not offer the same opportunity to employees.  If they make more money participating in such a plan, so will you!

Related articles:

Successfully Grow Your Business By Creating A Ladder Of Opportunity For Employees

How To Make The Ladder Of Opportunity Happen At Your Construction Business

Simple Profit Sharing Plan For Contractors

The Marketplace is Improving; Are You Sure You Are Working With The Right Vendors?

The marketplace seems to be picking up for contractors.  Many are reporting increased leads and sales.  With increased demand for the products contractors need to build their projects we will definitely see supply and demand challenges with local lumberyards, the big boxes and specialty product vendors.  This supply and demand challenge is one of the reasons many in the construction industry are predicting as much as a 25% increase in cost on many building products.  Although contractors need to be aware of these increases as they price their projects, I suggest they also need to make sure the vendors and suppliers they purchase their materials and products from will be prepared for the increased demand.

If you are a contractor who has been buying on price from vendors who have been selling on low price to get your business, you might want to think twice.   If that vendor has a good business, low or no debt and is using efficient business systems and technology to keep their costs low, you may be OK.  But if your vendor has very high debt, has cut back on staffing, equipment and service, just so they could sell at low prices, their business may not be prepared for a surge in sales as the economy improves.

Choosing and keeping the right building product dealers for your business and your customers

Here are some things to think about regarding the vendors you are currently using.  This same list can also help you decide which vendor or vendors you should work with going forward:

• Many lumberyards and specialty dealers are short staffed.   To save money and to stay in business many of these businesses have reduced staff during the recession and often times the people they let go were the higher paid employees.   If this is a tactic any of your suppliers used they may have let go many of their most knowledgeable staff.   The remaining staff, often less skilled and far less knowledgeable about building products, construction and contractors, will be challenged to serve contractors as the number of contractors doing work and buying materials picks up.
• 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?

The risks of low price

Selling on low price typically puts any business on a path to failure.  Sure, it may seem to help things at first when money gets tight.  However, unless they can ramp up their businesses, and do so before the market place improves, they will be forced to play a game of keep up and catch up as their customers’ needs and demands for products and service increases.   Working with a low price vendor might seem attractive, but can you be confident they will have what you need when you needed it?   If they require a deposit on special order items, are you confident they will still be in business by the time you expect delivery of what you ordered?   What will your customers think of you and your business if their project start date gets delayed and or the completion date gets extended because you can’t get what you need from your vendors to keep their project and your business on schedule?

Summary

Choosing the wrong vendors by saving a few bucks on materials may cost you and your construction business lots of wasted time, money and the valuable referrals your business has enjoyed from what used to be happy customers.  I highly recommend you choose your vendors wisely!

Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the co-author of A Simple Guide to Turning a Profit as a Contractor.  Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

Five Ways To Think Like A Business For Business Owners

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.

Have you ever said anything like this?

• “If I used that kind of markup in my area, I’d lose all  my customers”
• “Yeah, I’d love to job cost my labor but I could never get my guys to fill out timecards accurately.”
• “I’m just too busy to keep up with the paperwork, so I really can’t count on my financials.”
• “Sure I’d love to hang up my toolbelt, but there’s nobody else who can do what I do.”
• “My customers would never stand for me creating change orders for all the little extras we do; I just either eat it or try to make it up somewhere else.”

If you have, this is exactly the kind of self-defeating head talk that will keep your business not only dependent on you, but restricted in scope and sophistication to the limitations of your energy.

Here are some suggestions:

1. You are not your business. Don’t allow your personal limitations to hold it back. So you stink at paperwork. That shouldn’t doom your company to have paperwork that stinks. Hire somebody who just loves paperwork to take care of it for you, but only after you have determined what information you want and worked with him/her to make sure their method of data entry is going to get you what you want.
2. 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.
3. Plan for growth. Contractors who wouldn’t build a dog house without detailed plans all too often “build an addition” on their business without even a napkin scribbling. In other words, they add personnel, equipment, or practices but fail to integrate them into an overall plan. The result can be as disappointing as buying twenty 2x6-8’s when what you really needed was ten 2x6-16’s.
4. Avoid basing business decisions on your gut. Thinking like a company instead of an individual can protect you from making decisions that, deep down, you know are bad. Do an “at cost” project for a friend? Hard for you to turn it down, but a justifiable decision from the standpoint of the business. Hanging on to those dead weight employees because you dislike conflict? It may be hard for you to let them go if you’re thinking like a kind uncle, but much easier if you’re thinking like a business.
5. 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…”?

If your business had a voice, would it be offering you the very same advice?