Running a successful construction business requires keeping your eye on a number of moving parts, all at the same time. This includes managing teams of people, a fleet of equipment, an inventory of materials, and any number of ongoing projects, each with their own sets of issues, changes, billings and receipts.
However, due to the project-based nature of the business, each of these ongoing jobs will ultimately close (some none too soon!) and will need to be backed up with fresh work to keep the corporate engine running smoothly. The following explores some key factors to consider when looking to achieve growth by bidding on new work, and how market conditions may affect key bidding decisions.
Existing Clients: Still Good for Growth?
The construction business is largely based upon relationships and maintaining those relationships over time. I’ve sat in many construction offices listening to business owners talk reverently about the customers they’ve served over the years and how those customers helped “get us where we are today and we can’t forget them.”
Further, the level of effort needed to attract and retain a new customer is multiples higher than the level of effort required to retain an existing customer. This presents a challenge, since the customers and types of projects that helped your organization achieve its current level of growth may differ from those needed to take it to its next stage of organic growth.
While many contractors have continued to serve existing customers as they grow their client base with little internal change, some have determined that a better approach is to dedicate a team to serving existing customers while another team focuses on new markets.
The Promise (& Pitfalls) of New Markets
The construction industry is chock full of stories of small firms morphing into larger and larger organizations, either by growing organically, by acquisition, or both. At some point, these companies had to leave their comfort zone and attempt something new, either by bidding work in new geographic markets or by bidding on new project types.
For example, a specialty subcontractor may pursue an opportunity to bid as a prime contractor, or a company based in the Northeast United States may decide to expand into the Midwest. In either case, a learning curve will be required, as these new markets may have fundamental differences from what has proven to be successful in the past. What are some ways to mitigate these risks?
Some contractors have determined the best way to do this would be to look for joint venture opportunities with established firms. Others have chosen to augment their staff with someone who’s already achieved success in these new markets. And of course, there’s also the “get a foot in the door” model, where getting a new project with a strategic owner may be a great idea.
When market conditions are good, it can be difficult to justify an increase in costs, especially with legacy clients who may be familiar with your unit pricing history. However, when the market is hot, everyone is busy. This includes specialty subcontractors, as well as equipment and materials vendors. Any market boon also has a direct effect on the availability of skilled craft labor.
None of these very real issues may matter much to a long-term customer who’s looking at a steep price increase from your firm. Is there a way to satisfy these legacy clients in hot markets? I’ve seen strategies where our customers will ask for a “quid pro quo,” such as schedule relief or other soft benefits, for not paying premium pricing. Others have asked if their clients will consider a cost-plus contracting strategy, where they can verify actual costs, man-hours and materials tickets in real time. Still others have found there may be an opportunity to increase the skill level of their newer team members as an offset to offering “historic” pricing during hot years.
Let’s not forget, for those of us who have been around this industry for a while, that construction is cyclical. As one of the core values posted in one of my client’s offices reads, “We don’t take advantage of short-term circumstances.” Legacy customers can be a dependable source of continued revenue when market conditions cool.
Know Your Strengths & Weaknesses
Bidding work can take on many flavors. There’s the “hard bid” world of public works, where the bid forms are read at noon on Tuesday and the low bidder wins. This approach, outside of providing low pricing, offers little opportunity to differentiate one’s firm from the crowd.
The key to successfully bidding this type of work is to know your relative strengths and weaknesses as an organization and price these jobs accordingly, reflecting the measured risk. Historical knowledge benchmarking is an excellent way to apply an additional and objective measure of risk. Also consider: What do you know (or can conjecture) about your competitors’ workloads and appetites for new work? How might these variables help you bid more profitably on public jobs?
With the negotiated aspect of commercial work, the vectors of schedule, cost and quality will likely combine to help determine the best firm for the job. How can you best align the skills, history and project teams of your company to the client’s vision of their project?
One of my clients, who services local clients in their community, leverages their facility (e.g., tours of the shop or warehouse, etc.) as a differentiator. Others arrange to take prospective customers on job walks of similar projects they’re building nearby. Is there an opportunity to take prospective clients to a recently completed similar project to meet with a happy customer? Do you have an advantage with tools or technology—either in the office or the field—that will appeal to a new client?
With the advent of new contracting strategies such as Alternative Project Delivery and Lean Integrated Project Delivery, changes to an organization’s bidding style may be required. What many of contractors are seeing these days is more of an interview process, where the profiles of past, similar projects are considered alongside resumes of key project personnel. Is your business well-equipped to compete on these projects?
Define Your Differentiators
Forward-thinking contractors develop and maintain a library of project profiles and project team resumes from which they can easily draw information for new opportunities to remain competitive. Another strategy is to support your seasoned technical and field personnel with skilled communicators who excel in face-to-face interactions. Are you able to integrate engineering and construction to create added value for the client? Does the client place value in a culture of safety and, if so, do you have a verifiable safety record that you can tout?
With these types of proposals, there may be many opportunities to differentiate one’s firm from the rest of the companies offering similar services. Because you won’t be able to leverage all of your strengths on each project interview, the objective is to know which “hot buttons” appeal to which clients, and to be ready to illustrate past competencies in those key areas.
New contracting strategies and project delivery methods allow for much more differentiation opportunities than the “low bid wins” strategy of the past. While many of us have been taught from an early age that it’s inappropriate to appear boastful, in a hot and crowded market, it’s key that successful business owners articulate—and show concrete examples ofthe differentiators that should make their firm more appealing to a particular owner. In fact, they’d be doing the potential client a disservice if they didn’t provide them with that information as they make important decisions for their organization.
InEight provides a portfolio of solutions, including project cost management tools, that help owners ensure better project outcomes. To find out more, contact InEight to schedule a demo or visit ineight.com.