When PM editor Steve Smith asked me to write about my heroes for the January 2000 issue, naturally my first thoughts wandered into the distant past. As with most of you, I thought about my parents, favorite teachers, business mentors and others who had a profound influence on my life. But the more I thought about it, the more I came to view as "heroes" people not from my youth, but from a more recent era. First, a little background.
As I've indicated in a few recent columns, nothing has given me more pleasure in my later years than traveling the country teaching "Business of Contracting" seminars. I feel that I am filling a huge gap in knowledge and giving something back to an industry that has been so good to me. The thousands of students who have attended my programs are highly trained and skilled mechanics, but typically come to class woefully ignorant of what it takes to run a profitable business. Fewer than one out of 10 know the correct arithmetic about how to calculate a selling price based on their firms' direct costs, overhead and desired level of profit. For the most part, they have nowhere else to learn it. Even their accountants, who should know better, tend to tell them to charge what everyone else in the market is charging, or they'll go out of business.
Well, the reality has been quite the opposite. Thousands upon thousands of contractors have proven that the quickest way to go out of business is to charge the "going rate." Others scrape by indefinitely at a minimal living wage for themselves and their employees, but is that why any of you go into business?
Several thousand people have attended my seminars since I started putting them on in the mid-1980s. This is the good news.
Challenging AssumptionsThe bad news is that only a few hundred, maybe one-tenth of the total audience, have gone back and implemented the program I recommend of: 1. Crunching their numbers; 2. Increasing pay and benefits to themselves and their faithful employees; 3. Increasing the quality and quantity of services offered to customers so they can sell themselves on the basis of value rather than price.
Why so few? I think it's because it's a stark message that is hard for many people to accept. It requires something of a revolution within the mind to challenge the fundamental assumptions that most people in this industry have accumulated over their lifetimes.
These assumptions include:
1. The people I learned the business from must have known what they were doing.
2. Anyone who charges much more than the going rate for service work must be ripping off the public.
3. If I raise my prices, nobody will want to do business with me.
This is why many contractors who attend my seminars leave shaking their heads. They think that maybe "business by the numbers" works in some places, but "not in my market," as if their area were populated by aliens from Mars. Or, perhaps they just don't have the courage to give it a try. Or, they procrastinate. They intend to give it a try, but are so busy putting out the day-to-day fires of running a business that they never find time to change the things that might snuff out many of those fires before they start.
Boldness Pays OffWhat keeps me going, however, is knowing that some among them do give it a try, and among those who do, the vast majority end up enjoying a better life.
As an example, several times a year I get a thank you letter from a young colleague in the East who attended a seminar of mine back in January 1992. At the time he was charging $40 an hour for service and contemplating getting out of the business. The economy was in recession, and even charging cheap prices, work was tailing off. Worse, even when work was plentiful, the young man never seemed to have enough left over to provide much more than bare bones survival for his family and employees. His 1991 W-2 form showed an income of $46,000. To achieve that he was putting in a steady diet of 60-hour workweeks.
This contractor took the medicine in one heavy dose. He went back to his shop, took a deep breath, crunched his numbers, implemented a system of flat rate pricing and changed his way of doing business. His 1992 W-2 showed $112,000 of income, and has been steadily climbing ever since. His service technicians also made about double what he was paying them prior to the change.
The most amazing thing that he and others have found, is that you don't really lose business when you remake your business according to sound financial principles. Oh, you might lose some customers at first, but you more than make up for the loss in revenues gained. Figure it out: If you double your prices and lose a quarter of your customers, are you better or worse off? Except most people who raise their prices don't lose that many customers.
What's more, it's only a temporary loss. Charging realistic prices enables you to do the kind of marketing that brings in plenty of new customers. And it enables you to offer value-added services that brings add-on sales and repeat business.
My HeroesBut this is me talking. Better testimony would come from the hundreds of service contractors who went home from my seminar determined to create a better life for themselves, their families and employees. Talk to them about it.
You'll know who they are because they are the ones in your market whose service technicians wear sharp uniforms and drive the best trucks. These are the contractors who are involved with their community and actually enjoy coming to work each day. These are the ones who hire the best employees, and who understand what it takes to operate a profitable service business.
Look around for them. Talk to them. Let them inspire you to the courage it takes to change your business and your life. They are my heroes. Make them yours as well.