Short And Long Of It

By Donna Brewer as featured in Construction Today

Managing a profitable and growing business requires a balanced focus on the immediate and long-term gains.

It’s basic human nature to focus on immediate, “in-yourface” problems, and the average contractor sure gets lots of practice. Most are very good at crisis management and making important technical and project-management decisions on the spot – it just comes with the territory. The problem is that far too many owners spend years doing nothing but putting out fires and keeping projects on track, while ignoring issues related to the firm’s long-term viability (retirement and succession planning are two good examples). The result is a business that’s dangerously out of balance.

Admittedly, many of these long-term issues can be ignored without immediate negative consequences. Nonetheless, by delaying action, owners put themselves, their business, family, employees and their dependents in great jeopardy – to the extent that there may not even be a longterm future to discuss.

Not an ‘Either/Or’ Choice

Distinguishing between the immediate and long-term requirements of a business, while important, can be misleading – and actually dangerous – if it encourages owners to disproportionately allocate their time between them. Managing a profitable, healthy and growing business requires a balanced focus on each. It’s not an either/or proposition. Instead, the correct approach requires a both/and, wide-angle focus. Long-term issues are just as important as matters having a more immediate effect on organizational, operational and project-related issues.

Good luck trying to sell that idea to the frantic owners of construction companies struggling for their very survival. They’re so consumed with solving operational problems that they either can’t hear or won’t listen to the truth. And the truth is that these businesses, which are essentially running without managers, are on a collision course with disaster.

Unmasking the Issues

Take, for example, the case of Joe, the hypothetical owner of a busy but unprofitable roofing business. Like most of his competitors, Joe began his career as a roofer and he’s certain that his wide experience in the field, combined with quality work, is all that’s needed to succeed in the business. He’s believed that myth for 15 years, despite the fact that each year finds him deeper in debt.

To his credit, Joe is fastidious about quality and isn’t afraid of hard work. As a result, he’s managed to keep his business going, purchase a few used vehicles, some roofing equipment and even a small building. However, he’s always scrambling to make payroll, collect from his customers, pay his creditors or is even literally scrambling up ladders.

Afraid of losing business to competitors, Joe bids jobs on what he thinks the market will bear, rather than on his actual costs. Also missing in his pricing formula are allowances for overhead, break-even and a desired profit margin. Understandably, Joe loses money on nearly every job, yet remains convinced the solution lies in bringing more sales in the door and just getting through the five unprofitable jobs currently in progress. “After that, things will be different,” he promises his wife.

Escape Denial

Joe’s unwillingness to face reality manifests itself in other ways, too. He blames many of his business problems on a long list of chronic, operations-related snafus that, conveniently enough, aren’t ever his fault. In addition, Joe’s workers are habitually late, labor costs are over budget, materials never seem to get ordered correctly (or delivered on time), and his suppliers don’t give him the contractor discount his competitors receive.

The fact is that Joe has never examined his own behavior and actions or thought about what it’s like working for an employer like him. Convinced his employees are motivated only by their paychecks, he’s never explored other methods of productivity enhancement, such as team-building, incentive-based bonus plans, retirement and investment programs.

Road to Profitability

Joe’s story is repeated over and over by thousands of companies every year. Most end up going out of business. However, many others do find a way to reverse the downward spiral and become profitable – even in difficult economic times like today. Just how is that done, and in what order should these steps be taken?

A successful transformation hinges upon profound behavioral changes in each owner. This is a step few, if any, owners enjoy. It requires facing reality, honestly admitting one’s shortcomings as a business manager, and becoming willing to learn an entirely new skill set. The blame game has got to stop. Owners are strongly encouraged to delegate many of their former duties to key employees, but ultimately, the responsibility for any business’s success or failure rests solely with them. One construction company owner recently compared this step to having a bucket of cold water thrown in one’s face. Despite the initial shock, once the owner made a commitment to the process, the experience became liberating, energizing, rewarding and profitable.

Establish an equal balance between the short- and long-term requirements of the business. This can only be accomplished by a manager/owner who maintains an unobstructed, wide-angle view of the business – an impossibility for owners bogged down with a myriad of project-related, short-term emergencies and fires to douse. A contractor in New Jersey said that to attain this dramatically different view of his multi-generation family business, it was necessary to “fire myself up the company ladder.”

Design and implement new organizational and operational procedures. As owners assume true managerial responsibilities, they’ll need to select, promote and train key employees to assume their former operational duties. This will require the implementation of written job descriptions that clearly define each position in the company, along with accurate reporting systems that put the needed information and data in the hands of decision-makers when they need it. Such systems also measure employee performance in order to ensure consistency with company standards and to equitably determine and distribute the rewards of a profit-based incentive program. The business axiom, “If it can’t be measured, it can’t be managed” has never been truer than it is today.

Consider tax planning and asset protection. In today’s ever-litigious society, it’s critically important for owners to protect their personal and business assets, their families and employees from exposure to potentially devastating lawsuits. This has nothing to do with avoiding legitimate responsibility for one’s actions; rather, it’s about taking legal and ethical measures to protect one’s business and the people whose well-being depends upon it.

Consider tax planning and asset protection. In today’s ever-litigious society, it’s critically important for owners to protect their personal and business assets, their families and employees from exposure to potentially devastating lawsuits. This has nothing to do with avoiding legitimate responsibility for one’s actions; rather, it’s about taking legal and ethical measures to protect one’s business and the people whose well-being depends upon it.

Think about long-term security concerns, such as estate and/or succession planning and retirement. What are the owner’s plans for retirement? It’s shocking how few company owners make plans in this critically important area. Sadly, many of them are destined to discover that the retirement vehicle they’d counted on – their business – has four flat tires and a blown engine.

It’s very easy to get swept up in the day-to-day operational aspects of one’s construction business and, in so doing, ignore its long-term interests. A few owners promise to deal with the problem next year; most of them, however, are still making those empty resolutions until the bitter end. The best way to deal with a business’s short- and long-term requirements is for owners to devote an equal share of their time and attention to them.