Big Small Business
Thomas C Schleifer, Ph.D.
- The oldest known structure on earth Göbekli Tepe, the remains of a temple at an archeological site in Southeastern Turkey dated back to 9500 – 8000 BC marks the earliest example of what we now call the construction industry.
- Construction holds a prominent place in the US economy, with over a million companies that provide employment to millions of people annually.
- The market size of the U.S. construction sector was valued at around $1.8 trillion dollars in 2022.
Big Small Business
Construction is collectively a huge business made up of thousands of separate enterprises most of which started out as family owned “Mom and Pop” organizations that evolved through five stages of growth:
- Start-up – usually by an entrepreneur who does everything from bidding, selling, supervising, and providing the working capital without assurance of survival.
- Survival – enough time passes for the founder and credit grantors to believe the enterprise is more or less permanent.
- Success – The company goes about its business generating positive cash flow, typically growing at a moderate pace, while internally generating the working capital needed to sustain the growth rate.
- Growth – Increasing its annual sales by 15% or more while still funding the growth internally.
- Maturity – Usually achieved by the second or third generation with the help of professional management and large enough to influence its market.
Access to Capital
Construction’s evolutionary story is not like most other modern industries. Other industries from automobile manufacturing to major retail to tech and across the spectrum share similar start up stories by entrepreneurs who have a unique vision of a market opportunity. However, after Start-up, the financial equation takes on quite a different profile.
- Start-up – by a visionary entrepreneur.
- Survival – In most industrial companies, the visionary start-up attracts enthusiastic outside investors who provide the capital necessary to achieve the growth and development that ensures the company’s success.
- Success – After capturing enough market share the company pays off the founder by selling itself to the public at inflated prices providing capital to capture market share.
- Growth – Abundant public capital ensures market dominance by purchasing market share and industry consolidation under the guidance of professional managers.
- Maturity – Dominant companies financed by capital from the investing public include Ford, General Motors, US Steel, Apple, Microsoft, Del Monte, Walmart, etc. etc.
Top Ten U. S. Construction Companies (revenues may vary depending on source)
1. $18B revenue, founded in 1898 – Private company
2. $16B revenue, founded in 1912 – Public company
3. $9B revenue, founded in 1909 – Private
4. $9B revenue, founded in 1994 – Public
5. $8B revenue, founded in 1902 – an American construction company but a wholly owned subsidiary of foreign company.
6. $7B revenue, founded in 1990 – Private
7. $7 revenue, founded in 1870 – Private
8. $6B revenue, founded in 1937 – Private
9. $5B revenue, founded in 1983 – Private
10. $5B revenue, founded in 1894 – Public
All of these construction companies started out privately owned. Only three are now publicly traded and two of the three were privately owned for over 100 years.
The construction industry predates by a thousand years the US Industrial Revolution and the evolution of Wall Street’s public financial markets. For some reason, it is not in construction’s DNA to pursue public financial markets for the capital required to finance growth. Every large legacy industrial company in history outside the construction industry used public funds to grow and prosper. It seems that contractors however would rather go it alone. This is one of the reasons that our industry has the highest failure rate second only to restaurants.
Through A Longer Lens
Next week we’ll take a long look at our industry’s self-defeating procurement methods. Stay tuned.
For a deeper look into the financial management, read more here: FINANCIAL MANAGEMENT
For a broader view into leadership, read more here: GROWTH
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