Web Exclusive: DO or Die A Slow Death
March 1, 2010
The good old days are gone when you could win work based on your reputation, a wink, a smile and a handshake. 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. Nonexistent employee-training programs won’t get it done. A yellow pad and a pencil won’t work anymore. Unqualified accounting staff who deliver bad results six months after jobs are closed are a recipe for disaster. Inadequate job-costing systems, which allow you to spend money like water, will keep you poor.
Only the Strong Will Survive
A previously booming economy allowed unprofessional, unqualified and lousy business owners and managers to grow their companies and make a decent amount of money in the past. But the gravy train has ended. Only the strong will survive. And 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, proactive customer relationship tracking systems, strategic business plans, clear targets and goals, field operational systems in place, and a strong management team.
The robust economy also allowed business owners to continue doing business the same way they have done for years. These business owners have stayed stuck in their outdated ways. They will now try to compete on their reputation and past accomplishments as the economy continues to slow. Established businesses sit and wait while newer cutting-edge companies try new technologies or implement a new type of leadership style, project management system, or field productivity reporting method. Many 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 innovative strategy, decisiveness and a new vision to be successful. It takes guts to make tough decisions that will keep you in business and allow you to emerge as an industry leader in any economy. It takes real strength and confidence to do what it takes.
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 the same old box or what you’ve been doing for the last several years. Think DIFFERENT and NEW delivery systems, pricing structures, chains 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 micromanagement, 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 Customer FOCUS
Think FASTER. Think BETTER than ever before. Think BEYOND what you can imagine if you continue to do business the same old way. Customers today are demanding. They 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?
Customer focus and project and market expertise must be the central theme and the 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 they 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 got our FOCUS on target as follows:
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: more than 50,000 square feet and $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; overall 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 was 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 you don’t get off track. These improve 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 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 – On-Target!” business knows the real purpose for owning a business is 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. Competing on price against 10 to 15 other competitors won’t get it done as the economy slows. You can’t make any money; you can’t get rich; and you’ll have to work twice as many hours just to stay even.
Now you have a chance to start over. What can your company do to become what you want it to be and deliver? 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 owners don’t own a company; they own a job that doesn’t pay very much. But they’re busy doing what they know best. With a clear purpose, owners can stay focused on specific reasons, targets, and the results they want.
The purpose of a business is to give the owner what he or she 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 can think of. 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.
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
Customer Referrals: 12 per year
Employee Retention: 90 percent per year
Employee Training: 40 hours per year per person
Profit Sharing: 45 percent of net profit
Wealth Building: Develop 100,000 square feet of projects per year; buy, build and keep 20,000 square feet of buildings per year
Freedom: Take Friday afternoons and weekends off; take a minimum of four weeks of 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.
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. Don’t and you won’t. Do and you will. The choice is yours: DO or die a slow death.