Editor’s Note: This is the third in our 2008 series of “Get Your Business to Work,” written by our regular columnist George Hedley.
The economy is changing faster than most businesses can adjust. Successful companies now need to work harder and more efficiently than ever to break-even. They need to be focused, nimble, fast and lean to produce profitable results. The companies who’ll emerge as leaders in the roller coaster economy will be different, innovative, cutting-edge and always achieve exceptional bottom-line results. They won’t be afraid to quickly abandon old customers, slow markets, poor employees and under-used equipment.
The “good old days” when you could win work based on your reputation, a wink, a smile and a handshake are gone. Old methods of finding and doing business won't deliver even average results now. Old customer pipelines won't work. Trying to make a profit by being the low bidder won’t get you enough jobs to cover your overhead. Old project management techniques and lack of proper documentation will cost you even more money than ever before. Non-existent employee training programs won’t get it done. A yellow pad and a pencil won’t work anymore. An unqualified accounting staff that delivers bad results six months after jobs are closed is a recipe for disaster. And inadequate job costing systems, which allow you to spend money like water, will keep you poor.
Only the Strong Will Survive
A booming economy has allowed unprofessional, unqualified and lousy business owners and managers to grow their companies and make a decent amount of money over the past ten years. But the “gravy train” has or is about to end. Only the strong will survive.
The strong run their companies like pros: no work without a signed contract, no extras without a signed change order, accurate job cost data, cutting-edge integrated estimating and accounting software, field start-up meetings, weekly employee training, bonus systems based on achieving specific goals, ongoing target marketing programs, pro-active customer relationship tracking systems, strategic business plans, clear targets and goals, field operational systems in place and a strong management team.
The robust economy has allowed business owners to continue doing business the same way they have done for years without making any major improvements, trying innovative ideas or implementing new project delivery methods. These business owners have stayed in their outdated ways. These business owners will now try to compete on reputation and past accomplishments. As the economy slows down, more competitors enter themarket and customers are willing to try new delivery systems and products that use new, high-tech approaches to business.
Established businesses sit and wait, while cutting-edge companies try new technologies or try to be the first with a new type of leadership style, project management system or field productivity reporting method. Many owners resist making tough decisions about their future and don't change until it is too late. Some people hope that everything will work out as it always has before. This type of leadership will only do one thing in today's extremely tight, challenging and pressured business climate: die a slow death!
Today, it takes a creative strategy, decisiveness and a new vision to be successful. It takes strength and confidence to make tough decisions that will keep you in business and allow you to emerge as an industry leader in any economy.
Start with a Blank Page
Now is a great time to step back and start over with a new outlook. Think of a fresh piece of drafting paper. Ask the question:
"If we could start over, how could we design our company to be a cutting-edge industry leader not dependent on customers who hire companies based on low price?"
Forget about your current people, positions, procedures, systems, specialties or customers. Think new. Think new customers, project types and sizes. Think real opportunities. Think about making a lot more money with less work. Think creative approaches. Think expertise or specialty markets. Think beyond what you’ve been doing for the last several years. Think different and new delivery systems, pricing structures, chain of command, rewards and incentives, management reporting, productivity programs, customer relationships, sales and marketing approaches and profit goals. Think younger management team with fresh ideas, no micro-management and less controls. Think about rewarding and compensating results in new ways for all key managers based on company performance. Think about giving up some ownership to your future company leaders.
Develop a Customer Focus
Think faster and better than ever before. Customers today are demanding and want more value-added services than in the past. They expect perfect quality and service at a great price. How can you design your company to make a profit twice the industry average?
Here is an e-mail I received from a typical mid-size electrical contractor who grew his company by hard work, providing a good service and being low bidder on many different types of jobs: office interiors, home remodels, manufacturing buildings, small jobs, big jobs and factory machine wiring. He was so busy doing anything for anyone who asked for a bid that he had lost his focus and wasn’t making much profit for all the running around. He was frustrated. He knew if he stayed on the same path for another ten years, it wouldn’t get any better. Look at what he did to change how he’ll do business in the future:
“I want to give you an update. I was really motivated by your two-day boot camp, and I’m starting to put my new action plans into action. Last Friday, I pulled a list of 300 manufacturers in our area, and Tuesday (tomorrow) I will begin calling them to set up meetings. I’ve got a goal for how many new clients I want this year. Like you suggested, we’re going to focus on just two types of projects and customers. We’re now going to be the electrical experts in servicing manufacturing plants and facilities, as well as the electrical high-tech specialist for expensive custom homes.”
– Brian, owner of BC Electrical
Customer focus and project and market expertise must be the central theme and top priority of your business operation. You can’t try to do all things for all customers and expect to make a profit. At Hedley Construction, we experienced a constant struggle between what we sell and what our customers buy. Customers demanded first-class quality and top service but often made their buying decisions based on price. The challenge was how to deliver on all three (schedule, quality and price) and still make a profit. It’s difficult to be the low bid provider while delivering the best quality and superior service. Our company's bottom-line success dramatically improved when we narrowed our focus on the following:
- Our No. 1 priority: Repeat loyal customers
- What we do best: Provide personal service
- What project types we do: Office and industrial business parks
- What size projects we do: Over 50,000 square feet and over $2.5 million
- Where we do business: Within 60 miles from our office
- Who we do business with: Developers and business owners
- How we do business: Full service and full value; total construction management; overal development services Negotiated open-book contracts
We learned that you cannot be all things to all people. It doesn't work. A real benefit of getting focused is the ability to know when to say no. When you decide who and what you are, the opportunity to excel increases dramatically. You become laser-beam focused and don't get off track. This improves customer loyalty and bottom-line profit.
To achieve our No. 1 priority of loyal repeat customers at a profit, we rewrote everyone's job description. Our goal was to create clear expectations in the area of customer loyalty and profit. We also changed our incentive plans based on keeping customers and making a profit. This change resulted in productive and focused people, lifetime customers and above-average profits. With continuous loyal customers, finding new opportunities became an easy task for our business development department.
Define What You Want
An “on-purpose and on-target” business knows the real purpose for owning a business: to enjoy the benefits and rewards of business ownership. A great business is built to deliver what the owner wants. In a tough economy, it becomes very evident that a poorly designed business won’t ever deliver what the owner wants: freedom, profits and wealth. As the economy slows, competing on price against ten to fifteen other competitors won’t get it done. You can’t make any money, you can’t get rich, and you’ll have to work twice as many hours to stay even.
Now you have a chance to start over. What can your company do to become what you want it to be? Define clearly why the business exists and what measurable results are expected to give you what you want. In most cases, the business owner has worked far too many hours for the financial return he or she receives. This is common in small- and medium-size entrepreneurial companies where the owner and business are one in the same. The owner doesn't own a company, he owns a job that doesn't pay very much. But he is busy doing what he knows best. With a clear purpose, the owner can stay focused on specific targets and the results he wants.
In publicly traded companies, stockholders want two things: quarterly earnings or profits and increasing stock values. In private companies, the owner can want a variety of things. The purpose for my business is to accomplish three things: make a large profit, create wealth-building assets and give me freedom from day-to-day operations. I use my company to create opportunities that can reap fantastic returns. In order to do this, we strive to be the recognized expert in only a few project types, put heavy focus on loyal customers, offer more services than required by the contract minimum, maintain a great place to work that attracts and retains the best people in our industry and stand for impeccable integrity.
What’s your business purpose and focus? The purpose for your company can be whatever the owner wants it to be: freedom, finances, fun, family, faith, image, prestige, community involvement, helping others, providing services or anything else you want. The purpose of a business is not to be low bidder, keep your crews busy, create stress, work hard, get out of the house, keep your kids working or barely break-even.
Expect Results
For a business to work, expected measurable results must be clear. Some of the results we shoot for in our commercial construction business include the following:
- Return on Equity: Minimum 30 percent pre-tax
- Return on Overhead: Minimum 50 percent pre-tax
- Net Profit on Sales: Minimum 4 percent pre-tax
- Negotiated Contracts: Minimum 75 percent of all contracts
- Loyal Customers: Minimum 50 percent of all customers
- Repeat Customers: Minimum 75 percent of all customers
- New Customers: Six per year
- Number of Customer Referrals: Twelve per year
- Employee Retention: 90 percent per year
- Employee Training: Forty hours per year each
- Profit Sharing: 45 percent of net profit
- Wealth Building: Develop 100,000 square feet projects per year; buy, build and keep 20,000 square feet buildings per year
- Freedom : Take Friday afternoons and weekends off; take a minimum of four weeks vacation annually
The key to making it happen is to know what you’re striving for. Set clear measurable targets and then make people accountable and responsible to make them a reality.
Now What?
Your leadership decisions determine your everyday results. Weak and meandering actions will not get the results you want. Where are you now? Where do you wish you were? What do you want in the future? How can you make it happen? Be bold. Be brave. Be radical. Try something new. Set clear measurable goals and targets. Write out exactly what you want . Building a great business takes hard work, positive decisions and visionary determination. The choice is yours. Do or die a slow death.
Construction Business Owner, March 2008
