Industry Insights

January, 2011

Back to Basics

Giovanni Marcelli, Founder of Accubid

Sound basic business principles often get ignored during good economic times, and we then wish we had not ignored them during downturns. In recessionary times, when it gets tough to get good work and our sales regress, we are tempted to resort to quick fixes in order to survive. This problem is not unique to the contracting world, nor for that matter to the construction industry, every business has been impacted, arguably in various degrees, from this most recent recession.

I have witnessed at least five recessions over my business career and I am going to offer proven suggestions that will help when properly implemented in a consistent manner. I would bet any money that most of you are well aware of what I am going to discuss; however, I will also bet that a good number of you get distracted in different directions and forget many of these basic, down to earth key strategies that make your business function properly.

Contractors make money building projects on time and on budget.

Contractors do not make money in marketing, estimating or accounting. While we need a sufficient amount of work to recover overhead and good marketing, accurate and detailed estimating and accurate and timely accounting make that possible; project management is where the rubber meets the road. Real money is only made after a project is completed on or below budget, and the cash is fully collected.

So how do we complete projects on budget?

First we need a reasonable budget which implies sound estimating (accurate and detailed) to establish the right parameters for cost of labor, materials, sub-contractors and job expenses. We also need a detailed labor breakdown to create a realistic labor schedule and a labor budget that can be monitored and measured against actual labor.

Projects that meet the labor budget are most often profitable projects, so now that we have the right labor budget derived from a sound estimate we need to provide our field people the right information, materials, tools and equipment at the right time and at the right place. Last but not least, we need competent foremen, project managers and skilled manpower.

We must not forget that our success is primarily predicated by our people.

Do we hire the best people we can get and reward them adequately? Rewards are not just monetary; a pat in the back goes a very long way. Do we exercise a meritocracy and promote a strong sense of fairness across the company?

Do we prune the workforce that does not fit with our core team and culture? And most importantly, do we do this in good times, in spite of the fact that we may need more people?

Are we willing to resist hiring mediocre people and impact the rest of the team?

Do we believe in quality enough to sacrifice quantity?

Do we hire too quickly and procrastinate too long to replace?

Good people, well trained and with a strong sense of teamwork are by far more productive and easier to lead. From a culture prospective, think about the "the circle of success":

• We take great care of our people.
• Our people take great care of our clients.
• Our clients will take great care of us.

Addressing risk and profitability.

Contracting is a risky business, arguably riskier than most other businesses.

In spite of a sound estimate, good people, and good process, there are many factors that can affect the outcome of the project that are not under the control of the contractor, and therefore the element of risk cannot be avoided, it can only be mitigated. One good way to deal with risk is to build a slush fund with profits from good jobs to help when additional capital is needed. In good economic times this is definitely attainable, and if we run an effective and lean operation, the margins can be large enough to build a substantial insurance fund.

Cultivating your client base, turning customers into clients.

In the sales process we start with prospects, whether we bid projects or quote on maintenance contracts, we need to get work. A percentage of the prospects (hopefully 20% or more) become customers in that they afford us the opportunity to provide our services. In the process of providing our services we have the great opportunity to gradually convert customers to clients. The difference between a customer and a client is very meaningful. Good, reliable and professional work will build an initial strong and positive relationship with the customer, as time progresses the relationship gets stronger and the customer will offer you more work. As we get repeat work, we will experience a mutually beneficial relationship, and in the process, the customer becomes a client for the long-term.

I have often said that customers need to become clients or else they are not worthwhile having.

A client understands value and appreciates what you bring to the table; they view you as an important partner and a contributor to their success. The client understands that you need to make money to hire and train people to provide the right services, and long term value.

If you have customers that believe in the win lose concept, meaning that they win and you suffer or financially, return them to the marketplace, and look to work with the people you deserve.

Do not deprive your good clients by attempting to satisfy the bad customers, it is not fair to anyone.

Turning customers to clients is done more easily with a culture of care and service, and one founded on providing the best value, not the best price.

When a contractor has a proven ability to attract and retain clients, the contractor has a viable business that can be recession proof, prosper year after year, and attract buyers when the owner wants to retire.

Illustration by Angelo Katsaros

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