In last month's article regarding a contractor's opportunities to grow in size and profitability, we covered the options for overcoming shortage of funds and shortage of manpower.
We will continue that discussion with the next obstacle to growing your business - a limited amount of work.
Obstacle No. 3: Limited amount of available work in your market area.
You really have only two options: diversify or expand. We will begin with the first option, diversifying your business.
Option A: Diversification. You can perform an informal market study to determine what other types of construction work or nonrelated businesses are both profitable and available.
Obstacle A: We don't have the expertise to do other trades.
Option 1: Survey your existing employees to determine what other skills they have mastered in previous jobs, moonlighting or work at home. You should also ask what type of skills they would like to learn.
Option 2: You can recruit craftsmen with those skills.
Obstacle B: We are in a licensing state and do not have the necessary licenses to do those trades.
Option 1: You can obtain the names of inactive license holders and use their licenses or hire them.
Option 2: Any of your employees or acquaintances who would be interested in that trade can prepare for and take the exam for that license.
Obstacle C: We don't have estimating experience or unit prices to know which trades are profitable.
Option 1: There are numerous estimating manuals available (Walkers, Means, etc.), as well as flat rate pricing information.
Option 2: You can obtain a set of plans and specs to bid that specific work, but do not submit your bid. Go to the bid opening or consult with a friendly general contractor to determine how much overhead and profit you could have added and still be competitive.
Keep in mind that you can also diversify into any other type of related profit-producing business such as a supply house, retail store, equipment rental, etc. Naturally, you can also open a restaurant, gas station, lawn service, house cleaning service or sporting goods store.
Expanding Your Market Area
Your second and only other opportunity to grow, or even to survive, when you have saturated your market area is Option B: Distance. Fortunately, you have two opportunities to expand your market in remote locations.
Distance Opportunity No. 1
You can bid your type of work in outlying areas or in other states where the market is booming and profitable. Last year's hurricanes have opened mega-markets in Florida and the northern Gulf Coast. Both the United States and Canada have always had fluctuating economic areas with a depressed lack of available construction work and also those profitable boom times.
Here again, you can perform an informal market study with your local supply house, your trade association executive, or with contractors at a national or regional trade convention. You should then request plans and specs from a potentially good area and prepare a test bid using your own historical unit costs. If there is a public bid opening, you may want to attend, but not offer your bid. Or you may wish to add enough profit and overhead (travel and subsistence) to be certain that you don't get the job or that you got a damned good one!
When you find a good market and are awarded a job, you need to mobilize in that area:
- You should send at least two of your trusted management employees - foreman, superintendent, project manager, estimator or purchasing agent - to assure productivity and profit.
- You can rent or buy a house for a virtual office and living quarters. You could also set up a job trailer office to purchase needs for this project and bid additional jobs. You can maintain payroll, accounting and billing functions at your home office. However, all of this could change if your workload in that new area progresses.
- If your work is slow, you can send production workers from home, keeping in mind both travel and subsistence expenses. This additional overhead cost on your own labor permits you to hire local employees at a higher rate.
- You will need a covered prefab shop on site to provide steady work in inclement weather and during jobsite delays.
Obstacle A: Our employees do not like traveling and living away from home.
Option 1: You need to allow enough money in your bid to create envy instead of pity from your other employees.
Option 2: Use creative flex-time options to suit each employee's needs:
- Four 10-hour days to provide a three-day weekend at home.
- Two three-day, 13-hour shifts each week to provide every other week at home. This requires two foremen, but produces twice as much work each week.
Option 3: Discuss personal situations individually with each potential traveler.
- Employees without children may wish to take their wives along with them.
- Single employees may just need an enticing offer.
- Explain hunting, fishing, sporting events, amusement parks and golfing availability for after-work enjoyment.
Option 4: Offer promotion and career-advancement opportunities.
Distance Opportunity No. 2
You can also expand your present market area by establishing satellite divisions in outlying areas. You can use the address of one of your employees who lives in a distant area from your shop. You need to get a phone number in that area code that may be answered at your office. This is especially critical for service calls.
Of course, you will want all of your vehicles painted the same color with attractive logos and catchy advertising. They become very effective moving billboards to attract customers and new employees.
A satellite division reasonably near your office eliminates that need for employees to stay away from home. It also minimizes your travel expenses and subsistence costs. You can schedule your own employees to help with a demanding labor situation at the satellite area and also utilize their employees at your shop.
Operating a satellite division in your contingent market areas has no obstacles. You just need to do it! You will also attract good employees in that area who would otherwise not want to travel to your shop for a job.
I hope these opportunities, obstacles and options will help all reading this to grow and prosper. Above all else, you need to comply with these basic management guidelines to maintain a proud and professional image that attracts and retains good employees and good customers:
- 1. Zero-accident safety training discipline.
2. Human-relations training for all supervisors.
3. Customer-relations training for all service techs.
4. Database skill inventories and in-company task training.
5. Green & Gold mentoring for new help and transfers.
6. Written and posted chain of accountability.
7. Negotiated job descriptions defining scope of work.
8. Signed company policies with 8-for-8 discipline.
9. Performance files to keep score and reward accordingly.
10. Value-engineer every task on every project.
11. A fabrication shop to reduce labor costs and maintain critical schedules.
12. Monitor jobsite logs and paperwork to ensure positive cash flow.
13. Maintain a management smile on every jobsite and in your office.
Our great construction industry is full of profit-producing opportunities. Just decide what you would like and go get it.