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Generational Wealth

Despite its vast size ($2 trillion in annual sales) and impact on the nation’s economy, the construction industry remains, at its core, a collection of small businesses. Unlike other American industries, construction has never become a darling of Wall Street, nor has it consolidated into a few large publicly owned corporations.

In 2024, the US construction industry was comprised of approximately 3.2 million establishments ranging from small, independent contractors with no employees to large corporations. The majority are small businesses with fewer than 10 employees.

Closely Held Businesses

Most of these businesses are closely held and will be handed down to heirs and successors. That is their strategic plan even if some contractors don’t call it that. They plan to build the business and create generational wealth by leaving a going concern that can support later generations of grandchildren.

Generational Wealth Creation

How do contractors turn their hard work and acquired building expertise into generational wealth? How do they hand on the value of their accumulated expertise to their successors? The following sequence paints the picture:

GENERATIONAL WEALTH SEQUENCE – Accumulate construction expertise – generate consistent earnings – leverage earnings into strategic assets (land, building, equipment) – manage the assets – pass on the accumulated asset value.

Step by Step

Startups typically go through 5 stages of growth on the way to achieving substantial worth. It is the successful transition from one growth stage to the next that determines which firms achieve generational wealth.

  1. Start-up – Founders do most of the work themselves.
  2. Initial Growth- Founders still work hands on but multiple jobs divide their attention and require some time for supervisory and marketing functions.
  3. Expansion – Founders are no longer hands on but devote most of their time to administration, marketing, and finance.
  4. Maturity – Supervisors manage day-to-day business reporting to founder.
  5. Establishment – CEO and a CFO run the business. Founder as Chairman of the Board oversees asset acquisition, capital investment, and succession.

This is the path most successful construction companies follow, and they manage the transitions between stages with great care. Those that fail rarely recognize that difficult transitions are taking place. Let’s look at some common pitfalls, (or what not to do).

Managing Transitions

 Start-up to Initial Growth – Many contractors make these mistakes at this stage.

  1. They take more work than they can handle because they need the cash flow.
  2. They are reluctant to delegate decisions to employees they hired to help them.
  3. They work on projects rather than devoting more time to the marketing function, that is the life blood of the initial growth stage.

Initial Growth to Expansion – This is the most difficult transition, and some contractors tend to get in over their head. Many do not navigate it successfully.

  1. They take on functions they have no experience in rather than hiring experts
  2. They are reluctant to increase overhead before they have ample work to pay for it.
  3. They begin to overlook the details that add up to profitable operations. As sales increase profit margins begin to decrease. Schedule and budget creep set in.

Expansion to Maturity – During this transition the founder has got to learn to recruit, train, motivate, and delegate.

  1. The professional functions the founder must fill at this stage are often beyond their experience. Their recruiting is often limited to people they know and trust rather than people who are experts at the function they are hired to fill.
  2. Because at this stage the founder still has too much to do, they often fail to take the time to train the key employees they just hired.
  3. Most founders start small with little capital. They are, therefore, reluctant to pay key executive employees a wage that will motivate them to stay with the company and work hard to help the founder through this growth stage.
  4. After hiring key executives to run the enterprise they have built, founders often fail to delegate authority which effectively neuters the new management team.

Maturity to Establishment

The contractor has made it through all the difficult transition stages and can turn their accumulated expertise into generational wealth but wants to stick around to manage the family assets. The family begins to bicker among themselves, and lawyers get into the act. If the company begins to disintegrate, generational wealth loses value quickly.

Case Study

I distilled the examples above from hundreds of case studies. During many years as a consultant, I witnessed firsthand the reluctance of mature contractors to let go of the reins which becomes the root of too many transition failures.

For more information on the stages of growth, read more at: GROWTH

For a broader view of business maturity read more at: MATURITY

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 constituents. This research is continuous and includes new information weekly as it becomes available. Thank you.