Take a hard look at the following problems and make sure that your firm is not susceptible to any of them. These problems can cause contractors to go broke:
- They grow too fast.
- They lose their leadership or key personnel.
- They suffer bad luck in the form of weather, strikes, death, accidents or bankrupt general contractors, subcontractors, suppliers or owners.
- They take on unfamiliar work or work in an unfamiliar market.
- They have incompetent estimators, field managers or top managers.
- They follow a flawed strategy for too long.
- They rely on bad information from a poor management information system.
Good contractors can prevent most of these problems from happening, and they are prepared to handle those they can't. Five critical factors determine what makes a good contractor.
OrganizationA good contractor focuses on training (both formal and on-the-job) at all levels of the firm. A common educational experience leads to a coordinated plan that yields success for the whole organization.
The good contractor needs to have a logical, incentive-based compensation plan. There is no one-size-fits-all compensation plan. Each successful firm constantly works to establish a plan that meets both company and individual needs. If the plan is a winner only for the company, while individuals lose, you have a recipe for disaster.
Tenured, proven field superintendents play a big role in successful contracting firms. Take care of your field people. Promote your supervisors from within whenever possible. Train them from the beginning to move up within the organization. Remember that they can tend to get into a mental rut from time to time. Make it exciting for them to work for your company. It's the leader's responsibility to keep that excitement at a high level.
The qualified labor shortage has created lean construction organizations with extremely flat organization charts. This lack of depth means it is important to prepare the employees you do have to operate at optimum levels.
A good contractor creates a succession plan that will allow the company to continue to grow and prosper and allow the owner to have sufficient funds to enjoy retirement. The key is to start the succession plan well before it's time to sell the business. These plans take much more time than most people imagine they will. Also, unforeseen blips on the economic cycles can wreck even the best of plans, so contingency plans are required. Be prepared.
There is no one correct organization chart; find the one that works for you. After the chart is created, distribute it to employees and make sure that they understand it. Update - and possibly revise - the structure when someone leaves the company, when new opportunities present themselves, when the market changes or whenever you find a better way. When changes are made, communicate them both internally and to suppliers and clients that are directly affected by any change.
Culture at a contracting firm isn't about using the correct fork at a fancy dinner. Culture is the soul of your business. Culture is what your employees do when you're not standing beside them. A good contractor creates a culture that communicates a sense of loyalty, ownership and urgency. This takes time and effort to accomplish.
The good contractors have leaders whom people will follow off a cliff. Leaders come in all shapes and sizes. Successful contractors need good managers also, but they are not the same as leaders. Leaders set the vision and direction for a company. They inspire people to buy into the company's strategic goals.
High turnover is expensive. A good contractor knows what it costs to replace a project manager with 20 years experience or a superintendent with 30 years experience. The figure is much higher than many people would imagine. Turnover rates should be calculated for each level within your organization. High turnover in the accounting department is different than high turnover among field managers. You need to know the sources of each and have a plan to address each situation.
FinanceMost contracting forms that go broke don't die from a lack of work; they succumb to improperly managed cash flow. Contractors must have adequate capital/cash to withstand bad luck. Have a contingency for the owner who goes broke. Manage your overhead and make sure it's appropriate for your level of revenue and profit. It also is important to have a detailed monthly operating budget and cash flow projections for at least the next 12 months.
The importance of making a profit needs to be communicated throughout the organization. You owe it to your employees to pay your bills on time, manage debt and retainage wisely, and not overextend financial resources through unmanageable growth or chasing a client all over the country. Profits are why you are in business.
MarketingA good contractor has superior estimating skills and systems to manage costs. You must find and implement the best system for estimating and require feedback throughout your system.
Customers are the only means for contractors to generate profits. No customers - no profits. Good contractors take care of customers at all costs and thereby create satisfied customers. However, sometimes, good contractors need to “fire” some customers. Regularly examine your customer base and decide whom to keep and whom to drop. There are many reasons you might drop a customer. Maybe they don't pay on time; maybe they allow unsafe conditions on site that can endanger your most important asset - your people. If you drop 10 percent of your customers annually, within seven years, only the best customers will remain. But use this approach with caution - it means you will have to work harder to keep your good customers.
A well-defined market niche accompanied by solid strategy yields success. A good contractor will not chase every job in every market in every market niche. You must understand your market and have a 12- to 36-month plan to grow within it. By following the plan and growing logically at an appropriate speed, you'll have the best chance at success.
Everyone in your company should have the mindset of a salesperson. Everyone needs to understand the value of a customer and be prepared to keep the customer happy. That doesn't mean that every level of employee is authorized to spend any amount of money to satisfy a client, but they should have a reasonable expectation that if they do something to keep a customer happy, the company will support them.
Project ControlGood contractors have people and systems in place to manage their projects. The more you manage a project, the more successful it will be. This doesn't mean that you need to have everyone in field management on the job site at the same time, all the time. It means that you pay attention to the project and have an early warning system to alert you to potential problems. This system could sound an alarm before you ever bid the project. The alarm could come as late as the final phase of the project. The sooner you hear of a problem, the sooner you can address it and hopefully save the profit margin. A key indicator could be your project control reports. Whether they are paper- or electronic-based, make sure they are up-to-date.
Good contractors avoid going to court at all costs. Sometimes it is required, but only in a case where the company is in danger of going out of business. When a contractor goes to court, he rarely wins, only the attorneys do.
You must focus on your field managers. Glorify the field. Let those people know that they are the keys to improving productivity. Train them to find, analyze, implement and measure ways to improve their processes, and they will. Let them experiment. Share their successes and encourage others to reach for tough goals. Focus daily on improving productivity.
PlanningIf you're successfully running a good drilling contracting firm, and you want to ensure you continue running the firm successfully in the future, make sure you can answer the following questions:
Continuous ProcessIn conclusion, the answer to the question, “What makes a good contractor?” is not an easy one. It's not one category of success that crowns a good contractor. It's a variety of successes, and it's a process that happens continually. When you complete work on one area, it's already time to start working on another. Good contractors don't go broke. They will be with us for a very long time. Will you?