Closely held businesses tend to employ family members and friends as sole practitioners promote from within and train on the job. As long as the business is kept within the competence of these home-grown teams, things usually go along as expected. In other words, it works.

Growth Phase

In the construction business, contractors need to hop from job-to-job to continue working. Because the type and size of projects that are available when needed is uncertain, it is almost impossible for small or mid-size contractors to exercise close control over their rate of growth. They usually just take the work they can get, especially smaller businesses. The danger is that they tend to grow too fast. A small firm, for example producing $5 or $20 million a year cannot jump to $15 or $60 million with the same home-grown team. To grow successfully it is necessary to start building a team of managers to control each facet of the business.

Business Experts

As I have said so often, there are three distinct areas of business activity in construction - getting the work, doing the work, and accounting for the work. The key functions are (1) estimating and sales, (2) construction operations, (3) administration including finance and accounting. During the growth stage contractors can handle construction operations by promoting their home-grown team of intelligent, experienced tradespeople to executive positions in operations. However, estimating and sales; and administration and finance are not construction skills but rather business skills that require professionals educated and trained in administration, accounting, and finance disciplines.
 
Estimating is one of the key executive positions in any contracting firm. Founders are inclined to promote an experienced field supervisor or project manager to this position. This is a logical choice but doesn't account for the complex financial calculations like the compounding effect of inflation, the time value of money, or the use of statistical probabilities that are required to fine tune estimates. Even with the advent of sophisticated estimating software, it takes an expert in both finance and construction to make accurate assumptions in highly complex areas. It does not take many estimating errors for a contractor to realize that the estimating department is an essential team that should be made up of estimating experts rather than a collection of ex-tradespeople who felt it was time for a desk job.

Operations - Managing construction operations usually falls to an experienced tradesperson who has demonstrated a knack for organization with a knowledge of field operations. But as the firm grows and becomes more complex, the VP of Operations will need leadership skills to manage subcontractor relations, project managers, owner's representatives, a legion of material suppliers, and labor recruitment. This demanding executive position requires some formal education in business management, organizational behavior, psychology, and negotiations.

Finance - The need for formal accounting education goes without saying. The CFO is not only responsible for preparing accurate and timely financial reports, but also budgeting, estimating, banking, and cash flow management. It is critical to include the CFO in the ranks of top management where the crucial decisions are made. The CFO's perspective will often differ from operations, which is a valuable contribution as a counterbalance to the usual CEO optimism in measuring the firm’s financial capacity before signing a contract. This is a highly professional and essential executive position in any substantial contracting firm.

No More Mom and Pop

No one has more regard for the entrepreneurial zeal of America's mom and pop industries than I do. The business instincts, impulses, and need to survive that created the greatest economic engine the world has ever seen, propelled this country out of the Great Depression and into the postwar boom. The inertia of construction's mom and pop enterprises launches them into the growth stage. 

Down-home common sense allows startups to grow into highly sophisticated businesses that can compete in today's economy. However, contractors that succeed can only grow with professional key executive positions. They need to realize that their closely held setup will not be able to compete with larger, more complex, sophisticated business operation.