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Look for the September How To Issue

Friday, August 19th, 2011

One of my favorite parts of this job is getting to talk with professionals in the industry who work with contractors for a living. No matter if we are discussing something as specific as power tilt attachments or exclusions in general liability policies or even funny stories about workers’ comp fraud (there’s a good one about a worker named Billy who once won a rodeo after being “bedridden” for months), one constant always unites my conversations.

            Every CPA, insurance broker, consultant, and equipment manufacturer eventually make the same observation: Most contractors are amazingly adept at building a structure and running field operations, but when it comes to the running a business—the discipline it takes to crunch every number, the financial savvy, the ability to use insight from reports—many are lacking the information they need.

Most are just too busy chasing new jobs. Then there’s long hours and reams of paperwork and difficult employees to deal with. And, let’s face it: the kind of individual driven to be a general contractor is often not the kind that relishes tedious office work and long hours spent analyzing numbers. These are risk takers, men and women who are driven to hustle and make a profit—not the sitting still type. Sometimes it’s hard to get a contractor to slow down long enough to think about business fundamentals—it’s hard to get them to slow down at all.

            With work still scarce and construction growth frustratingly slow and spotty, many companies are still under-capitalized. Those that find success will be the ones that improve their processes and adapt to capture opportunities. While finding more work may be priority number one, the most successful contractors understand that “the devil is in the details.”

That’s why this September’s issue is CBO’s first-ever “How-To Issue,” chock full of helpful information focused on how to improve specific processes. It’s this kind of business management advice that separates CBO from other construction publications that solely evaluate and discuss equipment. Inside these pages you’ll learn how to better manage the submittal process; make the most of field, logistics and maintenance report; examine if it’s smart to restructure debt, reinforce training so that it sticks, and more.

Here is a sneak peek of the September cover. Hope you enjoy it! Please write in and let us know how we are doing.

Communication in Your Construction Company Is Key to Employee Morale

Monday, July 26th, 2010

I am not an actuary or a statistician, but my guess is that overall morale in our industry is quite low.  Employees who once worried about climbing the ladder of responsibility now feel that they are fortunate to have a rung to hold onto.  Business owners fear making payroll.  Production managers who used to fear they wouldn’t get all of the work on the board completed and on time may now struggle to keep people busy.  Even if your company is maintaining performance metrics, the evening news is filled with down notes.

I often discuss corporate culture in this blog and the vast impact that a sound culture has on a company’s bottom line.  If employees “buy in” to the program that the company promotes, everyone benefits.  Folks get to work on time.  Jobs can be finished quicker.  Pride in ownership displays itself.  But I believe a part of this equation is employee morale.  This is a tough time for all of us, and many construction business owners who are struggling to fill job boards and make payroll don’t have much sympathy for staff.  But your staff, even if they aren’t directly feeling the heat from reduced hours, pay or benefits may still be struggling.

I recall a time in my life when interesting projects that involved the use of my seldomly used timber framing tools was all that was needed to keep me motivated.  Working on many of the house museums in Savannah, GA, also helped me get excited to work each day.  But then marriage and family came, and my focus changed with their arrival.  Setting a timber truss wasn’t the only thing I needed to stay motivated.  I needed other things - job security, insurance and a check each week.  Our staffs are feeling these same pressures coupled with a deep uneasy feeling that something in our economy just isn’t right.  They may not be able to address it in scientific terms, but they know that something just isn’t right.

Now is not the time to withdraw to the daily struggles of the corner office and wall yourself off from staff.  To the contrary, now is the time to interact with them, and get a solid feeling of your construction company’s working pulse.  Meet with carpenters, team leads, superintendents and project managers. Most of all, communicate to your employees every bit of information that you are willing to divulge.  Empowering staffs with information won’t make them cut and run – instead, it will help them to better understand fundamental economics that are impacting their career and employer.  Ignoring questions of staff morale will surely lower it.

History teaches – Do you listen?

Friday, January 29th, 2010

The other day I had an early flight out of Atlanta and was sitting in my car about to reverse out of the garage. As a bit of an admitted geek, my radio was tuned to an am morning news radio station. For some odd reason, the local Atlanta channels don’t tune in real well within a mile or so radius of my home. We live in a rolling area and I have pretty much attributed this problem to physical geography. I fiddled with the dial and turned it up a notch to 760, which came in loud and clear. My point? AM 760 is WJR radio from Detroit!

Physics and radio technology aside (of which I know about zero), I was pretty happy to be presented with the opportunity to listen to WJR radio for about 3 miles of the trip to the airport. Don’t ask me how this was physically possible, I don’t know. Maybe someone can help me with that. But this radio station defined the “Center of Influence” that was Detroit during my youth. The sports teams of my youth came to life on that station. I still remember Ernie Harwell with his immaculately sweet southern lilt bantering about a Kirk Gibson home run, a Trammell to Whitaker to Evans double play or a Jack Morris fastball.  I remember hearing the play by play of Stevie Yzerman carrying his team yet one more time to the Stanley Cup playoffs; Barry Sanders twisting, turning and juking his way to superstardom; or Isaiah Thomas and Joe Dumars teaming for an NBA championship.  The sound of WJR was always on in the background of my family’s home spilling the local and national news of the day.

I was born in the City of Detroit. I was raised a couple of hours north of there in Michigan’s rural thumb. The thumb is, socially if not physically, light years away from the big city, but Detroit was our center of cultural influence. The Detroit that springs to mental image to many folks now-a-days (abandoned, high unemployment, crime ridden) is not the Detroit I was born into and remember. Detroit was an international city that built automobiles and trucks for the entire globe. The Detroit automakers were the envy of the developed world thanks to an innovation by Henry Ford that brought the automobile to the masses and gave rise to high wage manufacturing work. Immigrants spilled into Detroit for manufacturing work and opportunity, creating small burgs and hamlets that resembled their homelands but melded into American culture and society – in fact, helped to shape our culture and society.

This trip down memory lane does have a point. Detroit was the manufacturing capital of the world for a number of decades. Not just the Big 3 car companies themselves, but the suppliers, engineers, designers and product developers that sprang up to compete for and build components and sub-components for the automakers. Much of the economy of the area I grew up in reveled in the status of being the world’s great manufacturing giant. We became complacent with the status quo. We grew up with the expectation that additional education was a nice but not necessary accomplishment because one could earn a solid middle class living in the factories. In fact, the financial paradigm was tilted towards manufacturing work!  One could earn more money in the factories than many positions requiring college degrees. I never did work in a factory personally, but my siblings and many of my family, friends and neighbors did indeed choose that route. It is simply what one did. As a state and as business leaders, we grew complacent with success and status and failed to innovate. It is difficult to innovate when you have no one to emulate – and we did not. We scoffed at the “junk” imports that foreigners tried to make and introduce into the global market. For the most part, those initial attempts by foreign auto companies deserved some skepticism. They were not very good. We chuckled under our breath and went about building the best cars in the world. Since trucks and high powered muscle cars were the most profitable segment of the auto industry, most of the product development and marketing dollars went into them. The small car was best left for the “foreigners” to build. Who in their right mind would buy a small, shabby car from a foreign auto company? Why buy a glorified golf cart when you could listen to and feel the rumble of a 396 Super Sport Chevelle? The world must be mad to even consider such a thing.

But as history would show us, the world can be made mad very quickly.  Any great business or product can be rendered obsolete by forces outside of their immediate sphere of influence. The oil embargo of the 1970’s was the initial shock that sent our version of the world, and the fortunes of my home state, careening on a difficult path. Unbalanced trade laws, archaic labor rules and outsourcing are providing the final few notes of “Taps” to an industry and keeping the state in turmoil. We have not yet recovered, although by most appearances at least two of the companies have a good shot at becoming profitable again – although incredibly smaller and leaner versions of themselves.

The foreign auto companies, not wanting to compete head to head with muscle cars and trucks, developed small, fuel efficient cars from the get go. They looked to our automakers and emulated what worked and, more importantly, learned from what did not. They were hungry for success, yearning to gain market share in an arena dominated by huge national conglomerates. They were crazy for even attempting to do so. They failed, sometimes miserably, at first. They were small and nimble organizations that focused on efficiency way before Process Engineering became the consultancy de jour. They kept working, adapting, fine-tuning their development and engineering processes until that day when external forces beyond their control (the Oil embargo and fuel rationing) suddenly made their products a viable and desirable product for the consumer.

The trap was set, by no one in particular other than the hand of fate. Detroit would spend the next 30-40 years playing catch up in a game that they mastered in a market that they created. The masters had been overtaken by the student. I know it is easy to see with the benefit of hindsight, but no one (or at least a very few in my home state) saw this coming. The fortunes of Michigan would be forever changed the day that OPEC stopped shipping us oil in October of 1973 in response to the U.S. supporting Israel in the Yom Kippur war. The 20% interest rate cycle of the late 1970’s added even more fuel to the economic situation – but the city and domestic auto industry was already metaphorically burning. I think the same parallel on a broader scale can be seen in our peculiar relationship with Communist China. They are learning what we do well and are improving on what they can in several industries – not just manufacturing.

What is the lesson in all of this? Events that are unforeseeable often play enormous impacts on our fortunes. In a blink, what seems like common sense is lost to a new reality. If organizations do not remain nimble, agile and capable of rapid market corrections, those that are capable of those qualities will dominate the new industry. To those that are managing successful companies now – understand that your competition is studying how you do things and are learning to do it even better than you. They are seeing where you market, how you develop your products and services and the efficiency with which you convey them to your clients or customers. They are scouting what you do well and what they can improve upon. They are preparing to compete with you, in a market you may dominate currently, with improved versions of your own processes! And, if another of those unforeseen events occurs, (think cash crunch, credit markets freezing, etc.) these outsiders will be in a position to become the hunted rather than the hunter.

Even the best organizations with a large market penetration must constantly re-imagine, re-tool and re-think their processes and methods of engagement and be prepared to react when the unforeseen occurs. How many builders and developers were laughed at when they did not hold huge notes on land positions a few years ago? How many were scorned for not loading up on overhead and debt – even though debt was thought to be the magic carpet to affluence and overhead was code speak for “Positioning for future growth – because we will grow forever and ever, amen”? Those organizations that have been at the forefront of energy efficiencies and emerging technologies now hold the upper hand. Where does your company fit into this equation? Are you reacting to the marketplace or are you proactively defining your place in a new one? Discerning the difference between the two isn’t easy – but failing to do so has many negative consequences.

To wrap up – always, always remember and keep it as your organizations guiding influence – the competition is agile, smart, efficient, capable, proactive, always learning from you and hungry. You must behave like the competition – even in markets you may currently dominate.

The Economy and the Construction Contractor

Sunday, October 19th, 2008

 

Obviously we have been getting a ton of questions about the economy and what we believe the current market holds for contractors. 

With the people we talk to on a regular basis including contractors, developers and people who provide services to the industry we can place companies into roughly three major categories:

  1. TROUBLED:  This is the group that thanks to our media’s philosophy of ‘bad news sells’ we hear the most about.  The truth is that in most cases when we start peeling back the layers of the onion it is apparent that many of the companies in this group are having difficulty or failing due to reasons that were present prior to the overall economic problems.  The economy has only highlighted these underlying flaws in strategy and execution.   
  2. STAYING THE COURSE:  Construction has always been a cyclical business and for those companies with management teams that have been through this before they are simply staying on course making minor corrections but avoiding rash moves that lead to over-correction and more problems.  For these companies they will emerge with a stronger team and will have executed plans to make already lean operations even leaner. 
  3. GROWING:  There are a percentage of contractors out there who have built their businesses for long-term stability including having diversified revenue sources and conservative financial management systems.  During boom times they saved their pennies and have always been on the lookout for strategic opportunities.  They are positioned to grow through a downturn by being able to build at cheaper prices (for developers), have the time and money to improve their business infrastructure and even start or buy into new markets at discount prices.  In addition these businesses will have access to talent that was not available in a booming market. 

Whatever group you are currently in your goal should be to focus on moving your business into the ‘GROWING’ group.  Some of the elements that every company should be working on in order to move their businesses in that direction include:

  • REVENUE DIVERSIFICATION:  All sources of revenue have different sales cycles and are tied to different elements of the economy.  If you are tied too closely one source of revenue your business may be subject to rapid growth but also to rapid decline – for instance anyone related to the production housing markets in rapidly growing metro areas.  Revenue diversification is painful and slow but once a company is properly diversified the overall earnings become much more predictable.  Does your business have a mix of public, private and institutional revenue?  Does your business have service elements along with new construction?  Remember that when businesses can’t afford to build new structures their spending on maintenance increases. 
  • BIZ-DEV AS A PROCESS:  One of the weakest disciplines we see with all contractors is their business development processes.  This goes hand-in-hand with revenue diversification and growth.  Do you have a centralized customer list that everyone in the company works from?  For each revenue source (market area) do you have an exhaustive list of all potential customers in a centralized database?  Do you have a regular and formal communication program that keeps your company’s name in front of all customers and potential customers at least quarterly?  Does at least 25% of your business each year come from new customers?  If you don’t have business development down to a process then you open your company up to significant problems when existing customers or markets start to tighten. 
  • ACCURATE SCOREKEEPING:  Many construction businesses that we see have poor financial reporting systems in place.  If you can’t see a clear path from a particular source of revenue all the way to the net profit line including accurate accounting of direct and indirect expenses associated with that source of revenue then you can’t make accurate management decisions.  This is something we see as a problem in companies of all sizes and sophistication levels.  Having financials that provide an accurate picture of exactly who is contributing (or not contributing) what is crucial especially in times like these where you need to make hard decisions about what to cut and what to invest money in. 
  • FINANANCIALLY CONSERVATIVE:  Businesses and individuals who are being hit the hardest right now are typically those who were the most leveraged.  It is a perfect storm of failure to get hit by both slowing revenues, later payments from existing clients and tightening of credit.  Businesses who remained relatively unleveraged and worked hard to build working capital are able to make great decisions right now about how to use that capital. 
  • TALENT MANAGEMENT:  This is one area where the best companies really shine.  They have developed strong, loyal and cross-trained talent that can effectively scale up in boom times while effectively scaling down when necessary.  We saw too many businesses that took advantage of a single booming industry such as telecom in the late 1990’s and they built sizable organizations but their depth and breadth of talent was limited.  Many of their people could only do a single function and while that worked well for the original Ford assembly line it does not work very well for a contractor when economic changes in a market require scaling back.  An organization with strong cross-trained talent can scale back to a much leaner “fighting weight” than an organization with a bunch of people who are only good at a single discrete function of the business. 

There are dozens of other factors that flow into this including investment in internal systems for streamlining operations but these are basics that every company should have been working on and should continue to work on. 

If your company falls into group one and you take a hard look I bet that you will find some underlying problems in one of these areas; most likely in the revenue diversification and conservative financial management of the business. 

We will be discussing each of these in more detail in upcoming posts.  In the mean time reflect on this graphic showing market activity from last week taken from Sunday’s NY Times.  As much as it feels like it the volatility of the market does not really change the underlying dynamics of a business. 

Do some research on what Ben Graham calls “Mr. Market” and read into how Warren Buffet describes having a business relationship with “Mr. Market” in one of Berkshire Hathaway’s annual reports.  Some Google searches should turn up some good reading.  Right now we are experiencing a challenging time when there are some serious underlying problems with the market.  This is making “Mr. Market” moodier than usual and this moodiness is doing more damage than the underlying root causes.  As a contractor keep in mind that… 

Structures still need to be built and maintained – contractors still need to perform those functions. 

As always if you have any questions or situations you would like to see specifically addressed in this blog please leave a comment or email david@dbrownmanagement.com

 

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