Determine what is preventing your construction company from growing, and make changes today.
Editor's Note: This is the first in our 2011 series, "Profit Builder."
Someone who attended one of my seminars recently sent me an email asking for advice, and he closed his email with this semi-sarcastic comment: "I hope you are enjoying this economy!" It seems like everyone is looking for excuses to wallow in their sorrow.Yes, the overall business climate is slower in most markets, and competition has gotten tougher. But talking about how bad it is does not make things better. In fact, it justifies poor performance and makes it acceptable to have shrinking sales figures and lower profits.
What obstacles are holding your construction company back from growing or profiting in your market?
- Too many cheap competitors
- Less jobs to bid
- Low profit margins
- Jobs bidding below your costs
- Customers shopping your bids
Ask These Questions
Start by identifying the external and internal obstacles or excuses you face:
- What is preventing your company from progressing?
- How can you achieve your goals?
- Why is it difficult to change your strategy?
- Why haven't you made necessary changes?
- What additional knowledge do you need to succeed?
- What do you gain if you do not change?
- What is your worst-case scenarioif you do not make any changes?
Take a hard look at the answers. Then, look even deeper at your willingness to change how you do business.
What Should Plumbing Company Owner Charlie Do?
Imagine this fictional account: Charlie owns XYZ Plumbing, a plumbing company that specializes in new custom homes and remodels. His main customers are high-end builders and contractors who use a select group of specialty subcontractors they trust. Over the years, Charlie had built his company to three foreman and nine plumbers who are all excellent technicians at completing quality workmanship. His field crews do great work but do not interact much with the customers. Charlie handles all the meetings, bidding, proposals, scheduling crews, purchasing and contract management. As Charlie's workload slowed down over the last few years, he struggled with finding enough homes to bid on to keep his crews busy.
Charlie did not know how to get more projects. He thought he could wait until the economy turned around. But as he waited, he slowly had to lay off several of his key employees. Eventually, he started dipping into his savings account and selling some of his trucks and equipment to make ends meet. He regularly attended the Plumbing-Heating-Cooling-Contractors-National Association meetings and talked to his fellow plumbing contractors about his business problems. As he continued to look for answers, the phone still would not ring.
Unfortunately, Charlie is not alone. There are many contractors who are excellent technicians and solid business people who have built great businesses over the past 10 or more years but are now stuck with the same problem. Their old business model does not work now. Listed below are several suggestions and ideas for Charlie's plumbing business to grow and prosper.
1. Create Ongoing Revenue Streams
Charlie had built his business by doing excellent work and providing custom home-builders bids on a project-by-project basis. His customers liked dealing with Charlie directly and relied on him to do what was right on the jobsite. Because of his trustworthiness, Charlie received repeat business and referrals for high-end home plumbing contracts. And because his price was not usually the deciding factor, his crews had become less efficient and too detailed than they should have been. When competition increased, his prices and field productivity were not competitive enough to generate new contracts anymore.
With XYZ Plumbing's current business model in mind, think about what type of customers will pay for high-end workmanship rather than low price. Charlie's company is already known for providing the utmost in service and quality. He has over 275 past projects and customers who can vouch for his company's reputation. Therefore, the best business growth alternative for Charlie is to exploit what he already has and use it to his advantage.
Charlie could easily start a home maintenance plumbing, heating and air conditioning service company just by offering a great service to his past customers. This division would be built by offering ongoing annual service contracts to high-end residential homeowners who appreciate the best service available. He could easily market to past customers with introductory specials and free home inspections to get his service business started.
2. Replace Yourself
You need help to grow your company-you cannot do twice as much as you are currently doing and do it well. You must hire someone to either do your current job or the new job created. Adding a service division requires different management skills to generate customers and direct workflow than running a new construction contracting business. One way to start a new business within your own business is to hire someone who has specific experience to grow a profitable company or division. Another option is to buy a territory from a franchise company that already has the systems and training in place. Either choice will take another key manager to make it happen.
3. Generate More Customer Leads
The first goal for a new service or maintenance division is to break even within one to two years. After the initial start-up period, your division should generate enough revenue and gross profit to cover your entire company's overhead for both the service and new construction divisions. It will take an initial investment for marketing, staffing and training. But with strong leadership focused on generating leads, it will prosper quickly. Some ideas to generate leads for a service business include the following:
- Discount offers to past customers
- Direct mail postcards or flyers
- Rewards for referrals
- Keyword search engine optimization
- Job signs
- Truck signage
- Uniforms
- Six-month customer follow-ups
- Annual free home inspections
- Quarterly customer e-newsletter
- Door knob hangers near jobs
- Frequent buyer program
4. Convert Leads to Sales
Once you start generating leads, the next step is to improve your conversion rate. Keep track of how many calls your lead marketing methods generate. Then, track how many are converted into customers. Some ways to improve your conversion rates include:
- Use an inspection checklist
- Conduct video presentations
- Offer absolute guarantees
- Collect testimonials from past customers
- Present before-and-after examples
- Handwrite thank-you cards
- Offer first service for free or prepayment discounts
- Offer first-time buyer incentives or payment plans
- Accept credit cards
- Offer commissions to technicians
Do Not Make Excuses
It is difficult to make tough choices about your own future, especially when you do it alone. Get some advice-ask your mentor, and/or talk to another successful businessperson you respect. But you must make the ultimate decision about your company. Will you go backward, stay put or move forward? There are no guarantees in business. You made choices and took risks to get where you are today by hiring new people, going after new customers, trying new technologies and making tough decisions. Nothing is different now Stop making excuses. Put yourself in Charlie's shoes. He must do something drastically different. Plus, he has an incredible opportunity in front of him. You also have lots of ongoing steady revenue sources and choices in front of you, but what will you do about them?
How They Did It: Success Stories
Are these issues giving you the right to make excuses? The president of a commercial general contracting firm talked with me recently about the many challenges preventing his business from growing. He explained all the reasons why it was impossible to make money and continued making the same excuses most contractors make today.
After an in-depth phone coaching session, we discovered the real problem was his unwillingness to try new business models, services, customers and project types. The president was afraid to venture out into new territories and implement new ideas. He did not want to make drastic changes to his staff, sell any equipment, install new systems or reorganize his field operations. He also did not want to learn new technologies or change his estimating templates.
I also helped the owner of a paving contracting company, with his strategic business plan. His company's formula to generate revenue consisted of waiting for the State Department of Transportation to issue construction and road projects to bid. They figured if they bid enough projects, they could continue making money. Then, the recession hit, the stimulus money ended, the state's workload diminished, and their competition increased. Now what?
Thankfully, during our coaching sessions, this owner decided to design and start a new site maintenance division for his company in anticipation of the economic slowdown. Their new division's goal is to work with public and private property owners on annual contracts. This new type of work includes 24-hour on-call services for emergency repairs, weed and debris removal from storm drain channels, slope failure remediation, pothole repairs, temporary sandbag installation, parking lot sweeping and cleaning and asphalt patching.
This new division required more business experience than the current construction project managers had. It required a full-charge executive and business development leader who was well-versed in technical engineering issues, salesmanship, managing multiple service accounts and annual contracts. To start the new division, the owner hired a vice president from outside the company who had similar experience growing a service business. In less than one year, this new division has created a continuous revenue stream, which has made up the slack caused by fewer state construction projects to bid.
Construction Business Owner, January 2010
