Citibank today said that they are going to repay the $20 billion in bailout funds that they were given in order to relieve themselves of the debt owed under the Troubled Asset Relief Program.  They are not the first bank (either commercial or investment) to do so.  The frosty lending environment still hasn’t thawed, and start-up capital lending is virtually non-existent.  Joblessness rests at over 10%, and Dubai may have gotten out of the gate first in the commercial lending meltdown. 

Despite calls from Congress and the President, banks are just not excited to lend and have finally re-discovered all of their market fundamentals (lend only to excellent risks; don’t gamble other people’s money;  build up savings cushion, etc.) that they conveniently forgot when mortgage backed securities were all the rage.  I can’t blame them for their lack of excitement at lending.  I wouldn’t either.  The trouble is, when you ask for taxpayer money in order to survive and receive it, normally there are strings attached.  TARP appears to have had no (or very few) strings.

General Motors has lost two CEO’s with pressure from government regulators.  Chrysler is quietly spending its last days as a going concern as a foreign-owned entity.  But the banks (along with re-insurer AIG), the nexus of the economic meltdown, seemed to have gotten away with nothing more than signing an IOU and agreeing to spend TARP funds on advertisements suggesting people start savings accounts with them.

Any time government begins to meddle in the private sector, even with the best of intentions, something equally as obnoxious seems to happen in return.  Banks took tax funded loans, got solvent, got more savings cushion, then are paying back TARP in order to avoid the pitfalls and market stigma.  Now that the government/private banking industry have crossed that line ever further than before, the question is fair to ask who’s next?

Small business owners across the nation with excellent credit histories are not able to borrow money.  Banks teetering on the verge of insolvency with laughable balance sheets were given loans in order to stay in business.  Something just doesn’t seem fair.

Poor choices should yield poor results.  Terrible choices should yield terrible results.  But in the age of TARP, the natural paradigm was artificially shifted.  Legitimate businesses lost funding and many have left the competitive landscape.  Terrible businesses are now paying back TARP funds with consumer savings instead of lending in order to avoid pay caps.  TARP may have been necessary at the time in order to avoid a depression.  However; the strings attached were much too easy to shed.  We can’t very well mandate who gets or gives loans and for what amount as that thinking helped get us into the mess we are in.  But it is a sad day when my construction company owning friends are laying off staff and considering orderly wind-downs and the banks are paying back TARP.  What a tangled web we have woven ourselves into.  Banks are unwilling to lend, businesses are afraid to expand (thus build) and the economy hangs in the balance.  Yuck.

I read an article the other day on the International Space Station in Fast Company magazine.  The quote at the end of the article was – in paraphrase- “There are no children on the space station, therefore, it is not our future.   It is just a space station”.

It got me to thinking, and, locked up tight in Omaha, Nebraska during the first blizzard of the winter, that is a dangerous thing.  Many of us are struggling to keep our doors open and aren’t much focused on the future beyond making payroll at the end of the week.  I totally understand the rationale.

As an industry, are we forsaking our future?  Are we appealing to the best and brightest of the younger generations to join our ranks?  Are we providing a creative outlet along with sufficient financial opportunity in order to not only sustain but grow our industry?

I firmly believe that the days of construction being the last best remaining option for employment are nearing their end.  Clients will expect us to be ever more professional, ever more efficient, ever more proficient and on top of our craft.  This will require bright people that are well trained and passionate about their chosen career in order to make this happen.  We can no longer hope for the best of the leftovers – we need top tier employees and staffs in order to secure our industry’s future.

What are you doing to promote and retain exceptionally gifted new staff?  What opportunities and challenges are you presenting them with?  Are you throwing them to the wolves and hoping that they figure it out?  What will we do as an industry in order to compete with tech companies and other forms of engineering that are a gathering place for bright young minds?

We can’t just make do with what we have walk through the door.  Instead, we must create an environment in which people can grow and succeed.  In times like this, it is difficult to think about years down the road.  But as that great turn of phrase mentioned and I twisted  “…Without young people, there is no future, it is just a job.”

Ugh.  Round 2 is here, and I don’t feel recovered from round 1 yet.  I was just pulling my head out of the sand to hide from the residential real estate bubble when the news is full ofinformation on Dubai World.  The development arm of the city/state of Dubai is asking creditors for deferments on payments from its 65 billion some dollar in loan amounts.  Dubai has become the symbol of the commercial property boom/bust cycle of the double aughts.  Architecture and design – bordering on the phantasmic- all built with borrowed currency.  But Dubai is nearly half a world away.  And yet we will still feel the shocks.  Their situation may become, unfortunately, even more familiar to us as we move into 2010.

Our commercial property owners are facing similar problems as the state of Dubai is.  Granted  we may not have committed resources to building the tallest building in the world, but our overriding issues are similar.  High unemployment leads to stagnant business earnings, which leads to companies downsizing space, foregoing plans to build/lease new space, and simply exiting the marketplace.  Excess capacity created during times of easy credit are only adding the second edge to a very painful period in time.  I firmly believe that our commercial real estate sector is staring at a similar fate that has befallen Dubai – notes (and short term interest only loans) about to come due; vacancies and capacity at all time highs; unemployment lingering near the dangerous 10% mark nationally; banks unwilling to extend more credit to upside down or significantly leveraged owners; very few buyers willing to either purchase the property or able to come up with the necessary level of capital to secure financing.

I have discovered over the course of my life that I am an odd species of capitalist – an Optimistic Bear.  I believe in the strength of our economy and systems.  I believe recessions weed out poor performers and punish poor choices.  They also create opportunity and are a very necessary part of the business cycle.  I also believe that we are about to see yet more defaults and distressed commercial properties.  I am bearish on commercial (and residential) property and new construction right now but optimistic that unemployment will eventually ease  once credit fundamentals have reached a sustainable level.  But we will have to define a new normal for the aggregate, as the level of construction spending in recent history is, I believe, an anomoly and will skew the averages. I hope that I am wrong, but I strongly believe the situation in Dubai is the beginning of commercial woes in our own country and not the symbol of the end.

My team and I recently performed a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) on our company.  After a rather dismal 2009 in the construction world, it seemed like the timing couldn’t be better than now to get everyone together and discuss what we do well, what we could improve upon and what we perceive to be the big drivers of change in our industry.

What came up more often than I would have suspected was the relative lack of credit available to the homeowner and small business owner.  In years past, we often didn’t have much direct dealing with the bank beyond a schedule of values, a draw schedule and a milestone inspection here and there.  Now, I am an old-fashioned business person and don’t use debt much, but judging by the change in business climate, most folks that hire us do.  Therefore – the lack or availability of credit has a huge impact on my organization.  What happens on Wall Street obviously doesn’t just stay on Wall Street, but impacts Main Street in towns and cities all across the nation.  What we also came up surprised me and provided a “Duh” moment.  Those companies that are still around must be well-managed enterprises, and we should have no shame in seeking out assistance from them.

My business training taught me to use metrics to judge the cost/benefit of an acquisition and to determine the Net Present Value of cash flows.  I was taught that a good deal pays back quicker, and a bad deal doesn’t.  Fairly basic stuff.  What I wasn’t taught is what happens when lending freezes?  What happens when there is no capital available on which to analyze, spreadsheet to pieces and make business decisions from?

We are operating in an area that I certainly wasn’t trained to handle.  I wasn’t trained how to manage business finances when the ability to get short term loans ceases.  I wasn’t taught how to get customers when the value of their home has plummeted, in many cases to less than they owe on the property.  Nor was I taught how to make capital markets liquid again and dollars available to lend.  Instead, the School of Hard Knocks (HKU) is teaching me, and the trouble is one cannot drop out from HKU.  We can hire a tutor.  We can consult with fellow students.  We can’t, however, turn the pipes back on, or make our clients feel good about their future.

What we can do is stick to our fundamentals.  Sharpen our processes and garner as much efficiency as our companies can muster.  We can pay down as much debt as possible.  We can take heed when the banks stop running credit card commercials and instead run savings commercials.  We can look to the future, but that future is unclear, aside from energy efficient construction and more severe pressure on sales prices.  Those that have made it thus far and have remained in business are experts in their field.  Take them out to lunch.  Sit next to them at the next AGC or HBA meeting.  Pick their brain.  ”Borrow” their ideas.  Above all, imitate!  The companies that remain in business are fountains of useful information and data – don’t be afraid to use them as a resource.  My guess is that they have well developed processes.  Excellent communication skills.  First rate staffs.  Very little debt load or inventory.  They operate in the BASICS of good business, and we can all learn a thing or two from them.

I have often struggled with training programs for young carpenters.  As a laborer as a kid, I did the basic grunt work first, then got trusted with a hammer, then eventually was taught the finer points of building things.  The nature of the industry and the mobility of employees has put much of this informal apprenticeship training aside.  As managers, we lament the days of the talented carpenter that could build a project from A to B, but we fail to set aside quality training time to grow the next generation of these talented folks.  We assume that our employees won’t be here in a couple of years, so we don’t invest in developing them as builders and managers.  We quickly assume that they will head for greener pastures when the two dollar an hour (temporary) raise comes knocking.  We guarantee it when our organizations aren’t far-sighted enough to provide the pastureland for our staffs to grow into what they want to become.

As a small general contractor, I struggle with trades staffing needs.  I prefer to do as much of the work as I can in-house for both quality assurance and scheduling reasons.  But, unless these tradespeople are generalists in the sense that they can frame one week, drywall the next and run quality trim the week after that, I struggle to keep them busy.  This situation occurs countless times in construction companies everywhere.

Currently, I am internally debating  and leaning towards working with a local union for construction trades people more and more.  The benefits are obvious - fixed labor/hour costs, ample supply of personnel and, the most important aspects of all to me - apprenticeship training and continuing education.  Along with this is the ability to staff according to actual project needs and not projections.

The potential downsides that I see are a lack of ownership in the project (Doesn’t seem much different than a subcontract perspective); higher dollar per hour costs along with workplace continuity and how that would effect my clients.  I also worry about unionized workers giving non-unionized subs a tough time and vice versa.  Operating in a right to work state should quell this worry, but it is still a concern.

I would love to hear from any of you that have made the switch to union labor.  I would enjoy hearing the success stories and the horror stories.  In an effort to continuously grow both my organization and to adapt to an ever-changing marketplace, I have to reach out beyond my comfort zone a bit.  But, on paper, a well trained on-staff project management team provided with the ability to draw highly trained carpentry labor seems like a win/win and another tool to become more efficient. 

Aside from a political argument, which I have no desire to entertain here, have any of you found that using union trades (carpentry) labor has been beneficial to your organizaton?  Have any of you found it not to be?

I’ve always been somewhat of a Green builder.  Growing up and coming of age in a cold climate, I learned to  prefer 2 x 6 exterior walls for additional insulation.  We use to catch rainwater in an old cistern and pumped it out to water the garden.  We were squarely in the working class, so we re-used nearly everything and built for function way more than form.

Green idealism has been around for years.  But it wasn’t until recently with the surge in energy prices and the discussion about global warming that becoming Green is a necessary business strategy.  Customers look for some kind of tangible “green” symbol on anything and everything.  They now care about where the product was sourced, where it was built, the sustainability of the materials involved, etc.

I have always felt much of the recent green trend is just that – a trend with a defined shelf life.  With that sentiment, I do think a realistic greening of our industry is upon us.  This is an important shift in public perception.  I recently joined the U.S. Green Building Council and am diligently working towards the LEED AP certification.  Sustainability is upon us, and fighting the tide is a losing battle.  Although I could tell clients that Building Science has been a passion of mine since I was a teenager, there is nothing like the proverbial letters after one’s name to verify and qualify that statement.  I am beginning to feel like a credential collector, which is something I never thought I needed in this industry – but I believe that sentiment is no longer correct.

Our clients don’t just want a contractor – they want an expert partner that can guide them through the maze of questions and regulations.  They want someone who understands tax credits enough to point them in the right direction.  They want a contractor that cares about where the product was sourced, how sustainable the process was in both harvesting and building the end result.

As contractors, we can never be educated enough.  Building scientist (BS), renewable energy guru (REG), tax credit understander (TCU), sustainable product sourcer (SPS) - and, oh yeah – be able to build a facility on time and within budget with no punchlist.  Sheesh!  These are all letters that we now must, in some way, put after our name.

It is unfortunate in some aspects, but true and incredibly exciting in others - our industry has grown up and continues to do so, and we are quickly being considered more of a professional service than anything else.  We always use to wear multiple hats in our companies, now we may need multiple heads to wear all of them that people expect of us.  Let’s not fear these new expectations put upon us, but rather embrace them as a sign that we are succeeding at our goal, and are looked to for expert guidance and advice.  That alone is a powerful change in perception.  Trust me, it will take some time to get used to.

I am about to put the finishing touches on a porch I have been building for my family.  A rather unremarkable job for the most part, until I set down to thinkin’ about it.

Part of the process that I steer all of my potential clients to is an attempt to assign each lead a number that corresponds to a stage in the sales/execution process.  (1-5)

1. Website feeler or call for information (cold lead)
2. Potential for developing relationship (warm lead)
3. Pursuit in Progress (prelim scope of work/design ideas)
4. Proposal
5. Client

But what struck me as I was sanding and spit polishing our new gathering place last weekend was just how different the project seems from an owner’s perspective.  We didn’t want to start with anything more than a rough design, because it is fun to tinker, modify, change and adapt as we go.  My wife (our CFO) wanted a firm price before we tore the old one off (without a design! Sound familiar?)  I wanted to know how many of my summer weekends this porch that I hadn’t designed yet or planned would take. (Familiar to anyone?)  In essence, my wife and I were the worst possible clients!   

It made me realize just how important the process of lead to client navigation is.  I preach over and over that we cannot give anything more than an absolute ballpark guess of cost (and I try to stay away from anything other than a # to see if we aren’t even in the same orbit)  until after Phase 3 is complete.  We can’t begin to know what something will cost or how long it will take until we have a rough scope of work and at least a preliminary concept design, which then pushes us into phase 4.  But yet, on my own porch, with my own precious time and my own precious resources, I became the worst possible client.  I wanted to know everything possible without going through steps 1-4.  It suddently dawned on me on why my clients are often like this.

When we commit to a project, we know the end will justify the means.  But so often, our clients don’t enjoy the means of getting there.  This is the area that I strive to excel in for my customers.  We have developed a simplified process not only for tracking lead to client – but for tracking earthwork to punchlist.  We strive to make the means enjoyable by setting out a plan that gets them to the justification at the end of the project.  We work diligently, almost religiously, on tracking costs and avoiding missing steps in our process.  I did none of this on my own project at my own home.  Part of it is because I didn’t want to make the effort.  Part of it is, as sick as it sounds, building things is not only my livelihood but my hobby.  I didn’t want to make my hobby seem like work.  In so doing, we bumbled the cost to complete.  We missed the estimated completion time.  Our design looked nothing like what we started out with, because we started with hardly an idea.  Sure we are happy with the end result.  But is cost 1/3 more than I thought and took 3 weekends of work longer than I estimated.

Our clients want to behave in this manner, too.  They have a vision and immediately want to send out invitations for the housewarming party while the addition is nothing more than a sketch or two on a sheet of paper.  It is our job as professionals to guide them in the steps of building, the “Order of Things” as I like to call them.  Betraying this order causes a curse to be put on our projects in terms of time and dollars and ultimately client retention and good word of mouth.  The “Order of Things” is darn near the ten commandments in my company.  But, oddly enough, not for my own project.  I betrayed my own commandment of thou shalt not betray the Order.  I like this phrase so much I want to write a book about it someday.

I often marvelled at how some folks that hire us haven’t a concept of the difficulties and pitfalls in renovation and construction.  It is our job to develop a process, stick to it and not sacrifice it for the sake of expediency.   If we do, years of tinkering with process go out the window, and goodwill often goes with it.  Don’t become your own worst enemy – develop your process and stick with it.  The efficiencies gained when you can say “Client X is a 3 right now” and everyone knows exactly what that means is important for laying the foundation that our reputations are built upon.  I didn’t follow my own plan, but I learned something valuable – how my client thinks the moment that they call some one to design or renovate their home.  How much will it cost?  When will it be done?  When can you start?  I am sorry, Mr. or Mrs. client – the answers to all of these questions can’t be determined until you are at least a 4!!!

Let me start by saying that I am a dyed-in-the-wool believer in our version of capitalism.  All the good, the bad, the ugly, I firmly believe it is the most efficient and fair system yet devised.  I hesitated discussing this topic on a short blog post, but I firmly believe that healthcare is a distinct problem for us as an industry.  I don’t have the answers, but I do know that the costs of the current system make providing health coverage to our employees increasingly difficult, if not impossible, to maintain. 

Normally, when costs rise beyond a standard rate of inflation,  the market generally sees an opportunity to earn money and fills that need with hospitals, outpatient care facilities, etc.   Young people train as doctors, nurses and anesthesitists because the demand is so great.  In essence, the void is filled by competitive forces and costs normalize over a period of time.  If they don’t, and the cost of service outstrips the consumer’s ability to pay it, we have a healthcare version of a bubble bursting.  This is how it should work.  But something in the system is not functioning, costs rise annually well beyond inflation, and the losers are the business that pays all or a portion of healthcare coverage costs for their employees and the employees themselves.

Now that we have determined that I can see a giant brick wall crashing down around me, what is the solution?  What have some of you done to lessen your healthcare coverage costs, or at least ease the insatiable rate increases?  A construction company, billing $45/hr. or so for skilled tradesman does not have the additional revenue to absorb double digit percentage increases yearly.  In this market of declining revenue, the simple solution is to drop coverage for your employees.  This can cause a downward spiral effect as quality employees leave for locales that offer health coverage.  Not a pretty picture from any vantage point.

Some firms are exploring  Health Savings Accounts (HSA’s) and Health Reimbursement Accounts (HRA’s).  In effect, these are high deductible plans with a fairly substantial co-pay.  In the HSA, the employee keeps the funds in the account at the end of the year, in the HRA the employer keeps them.  Folks in our industry have told me that these work well for construction firms where the majority of workers are under the age of 35 and in relatively strong health.

Other firms I have spoke with have joined forces with groups in order to leverage purchasing power.  Perhaps the local Home Builder’s Association has an option availabe.  In any regard, providing coverage is increasingly expensive, and many of our brethren in the industry, through no real choice of their own, have to opt out of providing coverage to their employees.  We all lose in this instance.  Our best and brightest will not stay with us for long without a competitive benefit package. 

In short, please explore all available options (Group plans; HMO’s; increase co-pay; HSA’s or HRA’s) before eliminating the benefit altogether.  Keep open lines of communication with your staff.  Examine your plan yearly and shop it competitively.  Some employees may be willing to fore go a raise in order to keep their premiums affordable.  Our national healthcare system is in trouble.  Our ability to stay a worthy competitor for bright young talent hangs on our industry’s ability to provide good pay and benefits, along with quality of life issues.  I personally don’t believe a socialized medical system is the solution.  But I also know that high single digit or double digit annual cost increases are simply not sustainable and will cripple our industry.

What have some of you done to provide this benefit affordably to your staffs?  I, and many others I will assume, would love to hear any and all options available to us.

It is very easy to spend too much time working on small problems and not enough time forecasting icebergs and scouting opportunities.  In my organization, I swear we will spend hours debating the font size and attached clip art of a particular memo and only a few minutes discussing the content!  We’ve even gotten bogged down on what brand of glue works best for interior miter joints.  Every once in a while it becomes necessary to close the notepad and start over with a fresh page and perspective.  It is all about getting back to basics.

Simplicity in thinking is not necessarily about behaving like a simpleton.  (Although some might call me this!)  It is about organizing priorities in such a way that no one issue takes more of our valuable time than it should.  Breaking a large problem into smaller, more manageable pieces so that segments can be solved and the remaining issues challenged.  It means delegating issues to capable subordinates and allowing them the opportunity and the space to grow into leaders.  It is too easy to get overwhelmed in minutiae while opportunity passes us by.  It also means maintaining focus on the simple issues that impact our organizations and not worrying about those that we cannot alter despite our best efforts.

While I was working on a project in business school, I came up with an acronym that attempts to convey my thoughts on business leadership into a simple phrase that I can repeat to myself when I begin to feel overwhelmed.  Yes, it is an oversimplification of difficult processes – but I am a huge devotee of thinking as simple as possible.

Get back to BASICS:

·         Believe in the product, service and organization

o   If you don’t believe in what you do, no one else will, either.

·         Actions, not words

o   Words are what clients read.  Your actions are what they remember and pass on.

·         Simplicity in thinking

o   The keystone concept of my approach – Keep it as Simple as possible!  Simplicity allows for a checklist to make certain we are being thorough in our judgments.

·         Initiate ideas

o   Be an idea generator.  Bring solutions to problems (both your clients and your own) Think beyond the canned response.  Above all, think proactively.

·         Communicate

o   Without communication, even simplicity becomes unruly.

·         Service above all

Business leadership can’t be broken down into an acronym alone.  However; the cleaner and more simple we can make our approach, the more efficient it becomes.  The more efficient an organization becomes, the more time can be spent on scouting for work, earning profit or, heaven forbid – relaxing.

The current environment holds numerous challenges.  I have no idea when the tide will turn or when/what/where the next big thing will be.  But the message I preach over and over is timeless.  Simple thinking approached with clarity and focus, a tight control of spending, and a willingness to bring new tools, ideas and analytics into your organization while providing exemplary service will win in every environment.  Whether winning is defined as simply staying alive or actually thriving is a point for debate.  The key point here is to get back to BASICS and focus on what will make your organization successful.

I sat through a presentation yesterday concerning contact management software, or Customer Relationship Management – whatever one wishes to call a means of inputting contacts into a software program.  We have tried to implement this on several occasions and haven’t yet been successful.  What do you do with your contact information?

I understand the need to manage contacts, especially as a firm grows and multiple people may work with the same person.  I get excited at the opportunity to streamline billing, email blast folks, etc.  This software provides a central location to store that information with one problem - this data has to be entered.  I don’t like entering it.  No one likes entering it.  How do you manage your client contacts?