Business planning for 2023 might feel similar to an idyllic island getaway — complete with tiki huts, white sand beaches and a slight breeze blowing across the shoreline.
However, just on the horizon, there are dark clouds billowing and the local weather forecaster doesn’t seem to have an accurate projection on the storm’s trajectory. Will the storm hit, or will it just float on by? Do we board up the tiki bar, or keep the patrons fully served?
Similarly, the construction world is coming off another round of high-performing years. There were certainly headwinds in the form of material shortages, fuel price increases and the ever-present labor woes, but the contracting world persevered. The only cause for pause was the continual threat of recession or economic pullback. Inflation drove costs up, interest rates rose, and, in some cases, there was the expected “cooling off” relative to construction starts.
So, where does this leave a construction business owner developing an effective strategy for the year(s) to come? Is it time to batten down the hatches and expect the worst, or is it time to play offense?
Preparation Begins Well Before the Storm
If a storm were raging on that picturesque island, would the islanders say to themselves, “Maybe we should slap up some plywood … ” or would they have prepared themselves well in advance, shoring up their village and ensuring they had emergency provisions? It is intriguing to think of how many contractors thought to look at their balance sheet, collections, etc., at the beginning of the pandemic — as if in the middle of a wholesale business stoppage the world had never seen before, the balance sheet would mystically add zeros to weather an extended weak economic cycle.
The same concept holds true for this economic cycle: Even if the market continues to falter, preparations should have been made well before. Put another way, don’t be caught in a raging typhoon, hanging boards on the wall of a house while the wind is whipping the ladder out from underneath you. Preparation should begin today — not tomorrow, not another month, but immediately to be acted upon.
Winston Churchill said, “Never waste a good crisis.” And there is something to be said for capitalizing on a down market. Too often, businesses hunker down amid a storm and try to ride out a weak economy.
Assuming the preparations were done, and the business is situated properly, this might be an opportune time to play offense. Are there new markets or geographies that will be ripe after the storm? Are there acquisition targets
that would be excellent complements to your business?
Hunkering down can also be dangerous. It presents imagery of business leaders taking a defensive posture when quite possibly it would be better to be seen actively in the marketplace. Furthermore, there is also a concern that the business loses sight of initiatives, such as internal communication and its own people, that could be detrimental to long-term health.
Additionally, even in the worst economic conditions, there will always be winning sectors. Harkening back to the Great Recession, while many sectors that were decimated, there were also shining stars that stabilized many businesses. Put another way, a business does not have to parallel the economic plight of the country, and it can chart its own path — assuming it has thought ahead. Diversification takes great forethought and strategy.
No, this isn’t about liquidating stores of inventory in the warehouse. This is about reflecting on the business and asking the tough questions relative to the current situation. The most important piece of advice is to avoid complacency. It is a word that makes most business leaders cringe, but complacency is also bred through comfort. If a business has been profitable, it is easy to think that these great times will never go away. Great business leaders should use this recession inventory checklist to reflect on the position of the business and ensure it is adequately developing an action plan now to attack weak points before the tempest strikes:
- Do you have strong business development activity, or are you simply answering the phone?
- Do you have active relationships in the business community, or are you the last firm people turn to?
- Have you actively examined your distribution of work across niches/customers? What is the percentage or distribution? What are the margins among those niches/customers?
- Are you surprised by who is your best customer?
- Do you chase projects or customers?
- Do you ever find yourself saying, “There is no way that other firm can do it for that price …” only to see the competition around year after year?
- Are you executing flawlessly, or have you developed some bad habits?
- Are you really strategizing your work, or are you checking boxes?
- Are you good at collecting receivables, or have you gotten sloppy?
- Are you good at optimizing resources like equipment and materials, or do your jobsites look like auction sites?
- Do you see margin erosion and not really know why the fade is there, but you are at least still making money?
- Have you been routinely developing your people, or have you been “too busy”?
- What is the temperature (morale) of your team in a good economic climate?
- Do you blame flight issues solely on compensation?
- Have you been actively working on succession issues and filling gaps as people have retired?
- If there were an economic crisis, how would you prioritize your team members?
- Lastly, if you didn’t have the time to develop the team when you were busy, how will you develop the team when there is no work?
- What was the last new thing you rolled out within the firm?
- How have you encouraged your team to experiment and try new things when times were good?
- Have you invested in the organization?
- Do you think of these innovation items as simply technological achievements?
Answering any of these questions incorrectly is not cause for a flogging. In fact, most businesses have had their fair share of challenges. After the pandemic, it was hardly blue skies and rainbows. Business leaders were adjusting to an entirely new way of doing business as the world morphed, all while an exponential number of both positive and negative stimuli were influencing the industry. However, this a call to action for all business leaders to not just prepare a cut-and-paste business plan, but, rather, challenge the entire strategic direction of the firm for the long term. Hopefully, after the storm passes, we can all sip fruity drinks on that white sand beach.