As the coronavirus recession starts to bite, construction companies can go in one of two directions.
They can hunker down, focus on forgivable Payroll Protection Program loans and other government aid, and ramp up their bids in hopes of winning some business from increasingly competitive projects. This is a strategy utilized by more than a few.
Alternatively, though, they can treat this crisis as a strategic opportunity to diversify and invest in future growth.
Which approach turned out better in the last recession? The industry took a brutal hit in the wake of the 2008 financial crisis. But when you ask construction leaders about that period, they rarely cite regrets about not having curled into a tighter ball.
On the contrary, they’re usually sorry about not having taken advantage of some of the golden opportunities the recession presented to strengthen their business. A couple years later, companies that did grasp those opportunities were surging ahead while the rest were kicking themselves for missing out.
Feeling paralyzed is an understandable reaction right now as uncertainty swirls over the evolving health crisis. Although previously approved projects are mostly going ahead, plans for future builds have started to be suspended, suggesting a barren spell over the next 12 to 18 months.
Construction firms certainly shouldn’t make reckless moves at a time like this and they need to be smart about keeping a strong balance sheet. But they should also remember those regrets from the last crisis and adopt a strategy that ensures they don’t have them again.
The following are four strategies construction companies should be pursuing during the recession.
1. Target Growth Sectors
Construction firms should use this time to undertake a deep analysis of the economic landscape to understand which companies and industries are likely to emerge successfully in the coming years. They should be talking to clients about their outlook and directing division presidents to research how their industry is likely to fare in the post-coronavirus world.
Resources can then be redirected accordingly. Construction firms that serve big-box retailers, for example, should probably look at diversifying into sectors with better growth prospects, such as grocery stores, government contracts or a retail distribution chain that is expected to grow.
Rather than pumping out bids to their usual type of client to get a slice of a shrinking pie, firms should examine ways to differentiate themselves in order to appeal to high-growth industries.
2. Look for Strategic Acquisitions
If their balance sheet is healthy enough, there is no better time for construction firms to strengthen their capabilities through acquisitions. Many smaller firms that had been focused on succession plans will now be thinking it’s time to cash in their chips and and be more flexible in sales terms for the business rather than grit out a potential recession. For acquiring firms, this represents a chance to add to the diversity of their business.
Smart acquisitions can complement a firm’s existing expertise and boost its exposure to different stages of the economic cycle. For example, moving into a recession-resilient space like the remediation contract business could be a smart move to build long-term resilience.
3. Invest in Technology
Construction firms often have a to-do list of technology upgrades but have never gotten around to implementing them due to time constraints and day-to-day distractions. With workflow likely to decrease, now’s a great time to invest in technology solutions that leverage data to improve efficiency and decision-making.
These tools, which barely existed in the last recession, can enable firms to analyze the impact on their own business as well as the performance of different industry groups to inform their long-term strategy. They provide quick, relevant information, freeing up time and resources for the company to focus on more productive tasks.
4. Bring on Talent
Firms should be looking to take advantage of the fire-sale of talent that will be sparked by this crisis. There has been a tight market for industry talent, prompting employers to complain they just couldn’t get the right people.
So companies would be smart to use this moment to snatch up high performers at bargain prices and swap them out for low performers. Talented new hires with specialist experience can be central to the bigger picture strategy of going after new clients and increasing diversification.
Going against the grain in these ways may seem counter-intuitive at a time of intense uncertainty and worry about the future. But it will help construction firms to weather the downturn and emerge stronger with far fewer regrets than last time.