My wife and I get up every morning around 6 am, start the coffee, and together we read the Los Angeles Times and USA Today. Last week I was traveling to the CONSTRUCT show in Indianapolis later that morning, so I didn’t have time to read every news section I wanted to. But I did read one newspaper article which made me think about the typical construction company trying to do business in today’s tough and slower economy.
In California, total unemployment is predicted to reach ten percent or more over the next few years. Construction unemployment is almost double that sad statistic. But the monthly statistics which got me thinking even more, were construction permits issued in the State. Commercial construction permit dollar volume was down 66% and residential permit dollar volume was down 75% since the peak years of 2005 through 2007. This is a horrible situation if you are a contractor in California trying to keep your doors open and make a profit.
At several large construction conventions I have spoken at this past year, I have repeatedly heard shocking and similar sales figures from national companies who supply construction materials like cement, drywall, light fixtures, and lumber. Your state might not be in as bad of shape as California, but it does make you think about your business model going forward.
What type of company would you own?
If you were not in the construction business, what type of company would you want to start, buy, or own? Would it be dependent on the Federal government or your State to produce enough budget money to insure there was plenty of work for your company to bid on? Or would it be dependent on potential customers to ask you to bid plans and specifications against an unlimited number of competitors – qualified or not? Or would it be a business where you were awarded contracts based on the lowest possible price, regardless of your capacity, reputation, service, quality, or workmanship. Would it be a business where you do all the work and don’t get paid for weeks after you finish? Would it be a business where you do a great job and then the next contract is awarded based on the lowest bidder? Or would it be a business where you do a great job for a customer and then they may not have another job for you to bid on for a few years, if ever?
Being a contractor is a hard way to make an easy living. Or not! Most observers think contractors make a minimum of ten percent net profit and have all the freedom in the world. But the reality of our business is that as you may build a better and better company, you are really at the mercy of the market and customers to create opportunities to generate your revenue potential. In other words you don’t create your own future. You are at the mercy of others to decide to build and then give you an opportunity to present a proposal. Continue reading