Unexamined beliefs about the contracting business often lead to management decisions that limit success. Only after we recognize the existence and impact of unexamined beliefs can we alter our decision-making process. Let's examine a small sample of common beliefs:
For Example
- Most successful construction professionals I have worked with over the years remove excess cash from their company's balance sheet as soon as it accumulates because they believe that idle cash could be better utilized purchasing heavy equipment or sitting in a personal account.
- Construction professionals generally believe that a successful past guarantees a successful future.
- Construction professionals unconsciously expand overhead (office buildings/large fleets of equipment, etc.) because they believe overhead is a tangible symbol of success.
- A common construction industry belief is that top line growth equals future success.
- Most construction professional believe a competent constructor/builder is, therefore, a competent business manager.
Not So Fast
- Most construction companies that fail and are surprised when they run out of working capital. They believed their bank, suppliers, or clients would always come up with adequate cash to keep projects moving along. A construction company’s balance sheet must be carefully planned for adequate working capital to finance future growth. Running out of cash is the number one cause of contractor failure.
- In the construction industry, a successful past does not necessarily imply a successful future. Unlike manufacturing companies that design their products and produce them repetitively at an ever-shrinking unit cost. As the company reaches scale, the manufacturing company continuously produces revenue from an established source. However, in the contracting business there is very little continuity. Every time we sign a new contract it's like going into a new business. Every new project has a different size, new location, new owner, new designers, new sub-contracting partners, and a new supply cost environment. It usually implies new cash flow problems, new labor shortages, and new supply chain kinks that must be dealt with in an entirely new way. Success on past projects is no guarantee we will have success on the next project.
- The up and down-market cycles of the construction industry require contractors of all sizes to maintain flexibility in their overhead structure. Erecting a permanent overhead structure greatly increases risk when the construction market turns down as it does routinely. Leasing equipment, renting office space, and employing a certain amount of temporary help allows for the overhead flexibility required to survive dramatic construction market downturns. (It just doesn’t do much for our ego).
- Construction professionals are risk takers who love to grow fast. However, top line growth that exceeds a company's capital and personnel capacity portends failure not success. Only controlled growth that can be managed for a profit contributes to success.
- Construction expertise does not imply business acumen. Building and business are two entirely different disciplines, and both require experience and specific education for expertise. Great builders are not necessarily businesspeople. However, if they understand (believe) that building and business are separate and distinct skill sets, they know enough to hire the expertise they know they lack in order to have their companies function at a high level in both areas.
Change Beliefs — Solve Problems
Every construction professional should audit their business management skills by reverse engineering their decision making.
- Start by making a simple list of the problems your company faces.
- Then list the actions you've taken to alleviate those problems.
- Then ask why you took those particular actions.
- Your beliefs are hidden in this “why.” The result will be a list of what you believe about your business.
- If your actions were ineffective (the problems you discovered still persist), your beliefs were wrong. Change them.