Back To the Beginning
Thomas C Schleifer, Ph.D.
For 30 years I have been researching the causes of construction business failure. The study began years ago when I operated the largest national consultancy firm completing projects interrupted when bonded contractors suddenly failed. I originated research into the extent of contractor failure and was the first to discover and report that the contracting business had (and still has) the second highest failure rate in American industry, second only to the restaurant business.
Risk Not Failure
After 30 years of research on construction business failure, I realized that contractors in my audience were turning a deaf ear to these warnings. I was using the wrong terminology. I was talking about construction company failures to contractors who were still in business and intended to stay that way. Failure, in their mind, was for the other guy. I changed my pitch. I started talking about risk rather than failure, and everyone started listening. Every contractor knows that ours is a risky business. In an odd way, we take a certain pride in it.
Risk Research Warnings Over The Years
- Every project we undertake is risky.
- Every large project represents a new opportunity to succeed or fail.
- Every new project is like starting a new business.
- Past success does not guarantee future success.
- Many projects often take years to complete.
- Contracting is done with a team of subcontractors and suppliers, any one of which can stumble and cause a domino failure effect.
- Contracting is becoming more of a commodity priced business.
- Owners have become more savvy buyers, driving prices down.
- Margins have been shrinking for years.
- Project owners are often poor payers and represent additional financial risk to contractors.
- Skilled labor is in short supply.
- Materials are increasingly expensive and hard to get.
- Company size does not insulate against failure.
- Longevity does not insulate against failure.
- Public financial markets are not a ready source of capital.
Many, If Not Most, Contractors Are Successful
After all these years of studying the causes of contractor failure, I realize I’ve been asking the wrong question.
The question is not – Why do contractors fail?
The question is – How, in God’s name, do any of us succeed?
What do successful contractors do differently?
What are they good at?
What are their management techniques?
What are the secrets to their success?
What resources do they call upon?
Resources Required For Success
The construction industry is still largely populated by small and medium sized privately owned firms, and success in this industry is accomplished in growth stages from startup to survival to success to growth to maturity. The demand for resources varies significantly depending on which stage of growth a construction company is in, but the indispensable resources at each stage are:
- Owner’s ability – In the beginning this may be the only resource the company has.
- Business connections – Sometimes referred to as business resources include a customer base, relationships with subcontractors and suppliers, and a reputation in the marketplace.
- Cash flow – In the early stages cash and credit are in short supply so the ability to borrow enough cash to eventually earn enough to finance growth is essential to survival.
- Matching business and personal goals – To survive the startup phase, contractors must put personal goals aside except for the desire to succeed in business. When the contractor is unable to do that, reduced focus on the business and reduced potential for success creeps in. (This is also true during the early years following leadership succession. Note the failure rate at succession is far worse than the average industry-wide failure rate)
- Ability to attract qualified people is required to grow a contracting business beyond the startup stage combined with the willingness to delegate true authority to them.
- Strategic planning – which I sometimes refer to as long-term thinking becomes important when a company enters the success stage and becomes less reliant on the owner’s ability. Basically, a well thought out and committed long-term plan helps assure that the whole organization is pulling on the same oar.
- Systems and controls – Systems and controls are how strategic plans are implemented. They ensure that what is agreed-upon in the long-range business plan is executed.
The list above is an abbreviated list of the resources at each stage of corporate development that must be present to ensure survival to the next stage of development. It is only the beginning of a self-evaluation program that contractors can conduct to help them stay on the right track.
Research indicates that most contractors and senior managers understand construction methods better than the multi-layered business side of the business and the complicated interdependent relationships between marketing, production, and accounting.
Next week we’ll take another look at the Construction Company Self-Analysis Program that is free to use and found on the Simplar site at https://simplarfoundation.org/blog/. The program is a do-it-yourself diagnostic tool that provides the equivalence of an independent expert evaluation of every aspect of your business.
Find additional information on topics discussed here in the book The Secretes To Construction Business Success, published by Routledge https://bit.ly/3G9ornf.
For a deeper look into Construction Business Success, read more here: SUCCESS
For a broader view into growth, read more here: GROWTH
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