Survival Strategies

Are you and your company prepared to be in this business for the long haul? ten guidelines will help you grow your contracting operation and overcome obstacles.

by Michael Rudd

Many contractors have been fortunate enough to enjoy above-average business success early on in their careers. Yet, some of those overnight successes meet misfortune a few years later when they realize the hard part comes in surviving over the long-term.

One big difference between the short-term players and the long-standing survivors is that the latter group actually thinks about what it would take to perpetuate or even improve upon their early successes and plan accordingly. They also understand the degree to which their industry is impacted by market volatility and take the steps necessary to meet obstacles head on. For those contractors facing the challenge of growing a business past that threshold of mediocrity and, perhaps, wondering where to begin, these rules offer invaluable advice.

No. 1: Create a Strategic Plan
Most owners of contracting firms would never choose against having a strategic plan, but making the first move toward getting the plan initiated is difficult. Furthermore, many contractors fall victim to measuring success by how hard they’re working and whether there is enough money to cover payroll. For these labor-intensive types, as long as a hard working schedule is met and everyone’s paid – success has been achieved.

Instead, it helps for contractors to really believe their firms would actually operate best with a plan as well as a methodology for executing the plan. To avoid becoming overwhelmed by the planning effort, it helps to break it down to three different steps:

Define company vision – Business owners should separate themselves from the personal aspect of the business when evaluating employee performance. Neither personal relationships nor history should influence an employee performance evaluation. For example, when evaluating a job foreman, analyze how he/she completes paperwork, meets deadlines, controls overtime, manages other employees and conserves company assets.
Develop a functional organizational structure – Several employees may carry out multiple responsibilities under each function, it is important to establish accountability under one person. For instance, estimating, sales and marketing functions may be tackled by different employees, but the responsibility for the successful attainment of the revenue goals must lie with one senior person.
Establish minimum performance standards – Be sure to relate these standards to the company’s success as a whole. If a company’s bid-to-award ratio is 30 percent and it wants to generate $2 million dollars in annual revenue, its estimating function must bid at least $6 million to generate that $2 million in revenue. In addition to establishing the $6 million dollar performance benchmark, break this down into a monthly goal of bidding $500,000 and weekly goals of $115,384 to assure that the managers are keeping production on track.

No. 2: Stay flexible
For some reason, many company owners wait for annual review time to also dive into the business plan and make adjustments. One has nothing to do with the other. A strategic plan is a work-in-progress to access and change in accordance with sights set on the long term.

While the flexibility rule is important, it doesn’t mean businesses should operate without a strategic plan. That mentality may work in the short term, but all too often it turns into a grueling lesson in self-deception that can result in business failure.

No. 3: Become a Strategist
Transform from "technical expert" to "master strategist". Stated differently, this means going from working deep inside the details of the business to looking outward and planning the future success of the business. It’s a big change, especially when the technical expert is most comfortable being at the center of the action.

No. 4: Focus on Short-Term Growth
Worry now about driving numbers higher. Establish goals for the week as well as for each month. By focusing on growing a contracting firm’s business in the short-term, there will be far less worry about growth over the long-term

No. 5: Develop Reporting Systems
None of the rules mentioned so far can be implemented without reporting systems in place to track critical numbers. Some contractors have taken the lead and developed financial statements that truly reflect the company’s operation. Rather than using the all-encompassing category names (e.g. "Sales"), they’ve really examined the company’s work and tracked revenue accordingly.

No. 6: Hold a Daily Management Huddle
While it may sound compulsive, it is the best answer for being able to rely on the flow of communication to do what it’s supposed to do. Because huddles create intensity and focus, these daily management meetings allow business owners to identify problems and issues before they get out of hand.

No. 7: Control Costs by Budgeting Percentages
Above all, establish a set of ‘critical variables’ for every company. These are the key performance factors that gauge whether a firm is on or off track from where it would like to be. The key to measuring them effectively is utilizing financials on a percentage basis.

No. 8: Offer Incentives to Key Business Drivers
Owners of contracting firms should be aware of what’s acceptable when it comes to incentive plans for employees who seek long-term growth with a company. The owner of the contracting firm and the designee may sign all checks, but employees are those who spend all the money. The best incentive plans acknowledge this.

Being left without an incentive plan leaves employees feeling justified in developing one on their own by cheating hours and/or stealing materials. Nor are incentive plans limited to senior positions; rather, each employee’s contribution to the profitability of the company should be realized.

No. 9: Create a New Management Model
Especially if the existing one hasn’t done anything for the company lately, now may be the best time to throw out the old model that helped kick off the business.

No. 10: Play to win
All of the rules make more sense, seem to have more relevance, and are far more enjoyable to enforce when a company aims high and plays to win. Little can be more discouraging than playing not to lose. Playing to win means being flexible. A common thread linking all of these rules and determining the degree of success with which they can be implemented is the ability of a contracting firm to change when change is needed.

Mike Rudd is the Assistant Managing Director of International Profit Associates. Based in Chicago, IPA provides consulting services and guidance to owners of small to medium-size businesses. For further information, call 800-531-7100 or visit www.ipa-iba.com