My final thoughts for 2024. As this year nears its end, I am quite surprised. It may be my age, but I feel as if 2024 slipped away almost unnoticed. I thought we might pause, take a breath, and review what we have shared this year.
Overview
It is my mission to interact with experienced, competent construction professionals in discussions about how to run a business. I began my career in partnership with my older brother and knew nothing of running a business. Together, we became quite competent at construction but even as our business grew, we knew little of business management principles. I realized that running a business was a science, and I was determined to learn it. I began by going back to school at night to learn accounting and finance and then continued my education in the science of business management, eventually earning a PHD in Construction business management. I then set out to share what I had learned about running a construction business.
Business Management
Managing a construction “project” requires talent and experience. Managing a construction “business” requires knowledge of the science of business management. One of the unique features of the US construction industry is that it is composed of more than a million contractors employing over 10 million people and producing about $1.4 trillion worth of work annually. That’s an awful lot of small and medium sized, privately owned individual firms with contractors, rather than professional managers, at the helm. I write this weekly blog to discuss business management techniques with the thousands of experienced, competent construction professionals who have little or no formal training in the science of business.
Beliefs
Research has revealed a “belief system” that has prevented most construction professionals from utilizing many of the traditional business management techniques that are standard operating procedure in other large industries. The unique nature of the construction business resulted in unexamined but firmly held beliefs that drive decision making. Here are the top ten firmly held but unexamined beliefs:
- Growth is always good.
- A competent builder can make a profit building anything.
- Accounting produces after the fact external reporting for bankers and sureties.
- High risk = High return.
- Low bid acquisition is standard industry practice.
- Construction services are a commodity.
- Unprofitable jobs are just one of the costs of doing business.
- Accountants know little about construction and do not need to be admitted to the ranks of top management.
- Owners are required to pay only when they are satisfied.
- Long range planning is unrealistic. (Reminder: None of these “beliefs” are true)
The Unique Construction Industry
We have discussed the unique nature of the construction business many times throughout the year. It presents us with specific challenges to profitability.
- We contract for a service but delivers a product.
- Access few external sources of growth capital.
- Enjoy no transaction continuum.
- Start a new business, one new contract at a time.
- Consider low bid acquisition standard operating procedure.
- Provide financing of the owner’s asset under construction.
- Contract for fixed-price, long-term risks in a volatile economic environment.
- With multiple partially completed projects a clear accounting cutoff is difficult.
- No clear accounting cutoff obscures ongoing unit profitability. (Most are unsure if they’re making money along the way.)
Over and Over
I suggest to all my readers that they study the two lists above over and over.
- The first list of beliefs has resulted in a contracting industry like no other.
- It has led to the unique industry profile that the second list paints.
- Profit is always the objective of any business activity.
- Navigating our way together through the rocky profit shoals of the construction industry is the purpose of this blog series.
- When I was in the “failure” business completing projects for sureties who had bonded successful contractors, I finished jobs for more than 1,000 contractors who were shocked when they ran out of money and went out of business.
- We are a success in the construction business, until we’re not.
If you hold most of the beliefs in the first list and your company profile closely resembles the points painted in the second list, you should be eager to join me in thse blog messages in 2025.
To receive the free Weekly Construction Messages, ask questions, or make comments contact me at research@simplarfoundation.org.
Please circulate this widely. It will benefit your associates. This research is continuous and includes new information weekly as it becomes available.