Most contractors succeed without a formal strategic plan. So, why am I always banging away at strategic planning? Evolution. — Let me explain.
No Plan Necessary
There are over one million construction businesses in America creating more than $2 trillion worth of structures. 98% are privately owned small or mid-size businesses run by an entrepreneur who has neither the time nor the inclination to draft a strategic plan.
- Small contractors go from job to job doing “what has to be done” one day after another.
- “Planning” for the future consists of checking the Dodge Reports or other sources for jobs and preparing bids that seem to fit the company’s opportunity and capability.
- Most of the company’s management functions are carried out by the owner, not by a huge, complex staff of middle managers.
- The most common objective of this vast army of a million plus contractors is to “stay in business”. They want to live to fight another day.
Evolution
After a long career as a contractor, I taught at a university, and also presented management seminars at construction conventions. I was often hired to consult with various of the companies that attended the gatherings. As a result, I have consulted with hundreds of contractors large and small and as I look back can see a consistent pattern.
- Most of the companies that sought out my consulting services were owned by the founder and run successfully by his/her family.
- Through talent and hard work most of these companies were on the brink of becoming what we might call midsized. In other words, they had grown beyond being in the “small business” category. They had multiple jobs of various sizes and complexity underway.
- Most of the middle management were either family members or long-term employees who had worked their way up through the trades. Some had engineering or construction education or training, but virtually no one had any formal business or management education.
- All noticed that as they grew bigger their margins were shrinking.
- Most felt that they were losing control of the business.
- Many didn’t know what to do, but they knew they needed a plan.
- They took a flier and engaged me to help them figure it out.
A Mini Case Study
I often cite the matter of a young immigrant who came to America as a master stone cutter. He began working in NYC on high rise construction as a mason, the only job he could get. He worked harder with more expertise than the others and after a year became a foreman. In those days there was a shortage of skilled labor in NYC high rise construction, and our hero was frequently called upon to bring his friends and neighbors to work when needed. Soon he was leading all the crews of the tradesmen he had recruited so he started his own business. Ten years later he was the most sought-after masonry subcontractor in the New York metropolitan area. By this time, he spoke perfect English but still had no formal education. His common sense told him that he didn’t have the knowledge to manage his own success, and he set out to find someone who knew how to run a business rather than lay brick. He hired a management consultant who helped him write a business plan and watched him grow the business into one of the largest contractor in the Northeast. The company is still owned by his family.
Evolution
Small businesses do not need a formal strategic plan because from start to finish, the plan is contained in the mind of the founder. But in the volatile construction industry many successful small contractors grow into mid-size, executing multiple and simultaneous highly complex projects. Research tells us that largely because of the highly competitive construction environment when companies grow quickly, margins begin to shrink dramatically, and the risk of failure rises to a critical level. This is the moment in the evolution of a construction company that the injection of professional business management techniques is essential. I venture to suggest, after serious research on the issue, that this management decision is the clear dividing line between those contractors who go on to succeed and those who level out or collapse under the weight of their own success.
Growth
As margins shrink in the construction business, the life blood of contractors becomes cash flow. Growth in this industry has always been considered essential to survival. But construction companies often outgrow their capacity to finance and manage multiple projects to successful conclusions. Every construction professional has a maximum size they can manage effectively. Knowing when to hire management skills and execute a strategic business plan is the key to surviving the transition from a small local operation to a dominating mid-size contractor.
Next week we’ll discuss the steps for crafting and implementing a strategic plan.
If you believe in Coach Hurley’s strategic approach to basketball, then you will be eager to apply the same technique to getting what you want. Next week we’ll discuss the steps to take to get what you want.
For more information on financial management, read more at: FINANCIAL MANAGEMENT
For a broader view on growth, read more here: GROWTH
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Please circulate this widely. It will benefit your constituents. This research is continuous and includes new information weekly as it becomes available. Thank you.
