Contractor Failure Rates

February 28, 2007

Last week we did a session at the Electric West show on How Project Managers Can Increase Cash Flow. Cash flow is very critical for contractors and one of the slides I wanted to make to underscore this point was the failure rate of contractors. I knew it was high but wanted to do something that would bring attention to the subject.

In doing the research I came across a great website from the Surety Information Office that had a ton of good information on it.

One of the great things they had was a short paper called Why Do Contractors Fail? It brings up dozens of great points that any contractor can use as a checklist to build a stronger business.

Remember that surety companies bet their own money on your success or failure. They know a lot about the indicators that a contractor will fail. Having a good relationship with a surety is one of the best things a contractor can do to stay healthy.

Candels Consulting - Electrical Estimating Service

Companies that do take-offs and help prepare estimates can be effective for helping a contractor grow if they are managed properly. Definitely worth investigating if you believe you are in need of estimating help. www.candels-consulting.com

Selecting Construction Software

February 27, 2007

The other day one of the owners of RiverGuide, Inc. contacted us and invited us to their site to look around. I was quite impressed with the concept and focus of the site. Software selection in the construction industry is something that is extremely important yet few executives and owners spend the time necessary to really make a good selection.

One very useful resource on their site is a whitepaper called The Best Practices Guide to Selecting Construction Software.

I read this cover-to-cover this morning and it should be a must-read for ANYONE who is thinking about or who is implementing any construction software.

One of the key points they make is one we always try to get people to focus on. Figure out your company work processes first, then figure out whether the software can support those processes.

If you are talking to the sales person and they can only talk to you about "features" simply thank them for their time and find another sales person.

Processes and efficiency make money - features are relatively minor details. Too often we see software that was selected based on some "neat" features that are actually never used and in the grand scheme of the business they are not even part of any process that actually makes a profit.

This would be the equivelant of selecting an excavator based on how many stations the radio gets rather than focusing on the 2-3 things that really matter such as excavation capacity and hourly operating costs yielding a production per dollar number that can truly help you make a decision.

Some of the slides from our Integrated Operations& Accounting for Contractors training module that are appropriate to this point are below.

Joe Salimando - www.electricalcontractor.com

February 26, 2007

Last week I was at the Electric West show and met Joe - he was a wealth of knowledge about all aspects of the construction industry, specifically the electrical industry. Well worth adding to your contacts:

Joe Salimando
EFJ Enterprises
PMB #683
11350 Random Hills Road, Suite 800
Fairfax, VA 22030
ecdotcom@gmail.com

You can find him on the web at

www.electricalcontractor.com

The Electrical Distribution Magazine (www.tedmag.com)
Rexel - Power Outlet Magazine, Publisher
Engineering Inc Magazine Articles
Partners In Progress (www.pinp.org), a SMACNA website
Energy User News (www.energyusernews.com) Articles
Electrical Contractor magazine (www.ecmag) - search on 'Salimando'

CFMA - 2006 Annual Construction Contractor Financial Survey

February 25, 2007

We constantly get asked by contractors how they compare financially to the industry.

We see wide variations in profitability between contractors based on experience, drive, systems, etc. on top of which market they are actually competing in. That information is valuable in helping our clients improve in one area or another.

Just as important is benchmarking against the rest of the industry.

Annually the Construction Financial Management Association (CFMA) does a survey that is extremely valuable for helping contractors benchmark themselves.

The 2006 Annual Financial Survey is available in PDF format online

Ability To Check Quality Of Contractors

February 24, 2007

Last week was a pretty hectic travel week that included dropping by the Electric West show in Long Beach to teach a class.

One of the best parts of the class was meeting Joe Salimando who is a writer and general industry expert covering the electrical industry for over two decades. Joe is a wealth of knowledge and should be in the Rolodex of ANYONE in the electrical industry.

His website blog at www.electricalcontractor.com has some great nuggets of information. One story that grabbed my attention this morning was an article about how someone finally got sick of poorly performing contractors that mis-treat vendors and subs. They launched a site (www.forinoreport.com) to help people rate the contractors they work for and keep others from getting into the same trouble.

The industry needs more people like Joe and Rocco to keep ourselves progressing in the right direction. The future of our industry lies in our ability to keep ourselves moving forward and progressive people like this are what it takes.

Bug of the Month Club

In the IT world there are people that actually dedicate themselves (for free) to finding and publishing every bug they can find for a specific piece of software.

There is some debate whether this is good or bad - I can see both sides.

Personally I think that when problems are exposed in a "big and loud" way it does put a lot of burden on people to fix them quickly and that stress causes a lot of short-term problems but in the end it forces people to rethink entire processes.

People by nature are typically complacent and therefore they don't like being pushed out of their comfort zones. Sometimes pushing people out of their comfort zones causes damage. Sometimes a company can not act fast enough and more damage is caused.

Of course people are going to think this is bad - but the upside is that it is making people (forcing them) to get very, very good and quick at fixing problems.

Rapid recognition and broadcasting of problems is probably the best thing that a company can go through even if it is painful in the short-term.

Read the complete article called "Time to End This Gimmick" online at www.darkreading.com if you are an IT Guru - if you are not an IT Guru just think about how to make every problem in your business stand out as if you had a team of people watching you every second and posting the problems in real-time.

Start fixing those problems and their root causes and you will have an amazing business.

Personality as a Prediction of Performance

An article in Professional Remodeler magazine called "Hire With Personality" discusses the use of personality profile tests such as Myers-Briggs, DiSC or Predictive Index when it comes to hiring people.

It's funny how much people in the construction industry get caught up in technical interviews when two of the biggest factors that will predict long-term success are personality and raw intelligence.

We were working with a client the other day as part of our Emerging Contractor Development (ECD) program and the topic was on recruiting. They were very focused on the techical aspects of the job but when we got down to rating their team and picked all the 'A' players the common traits they had were personality and intelligence while their actual experience varied greatly and compared equally to other people on the team who were 'C' players.

This highlighted how important personality and intelligence were to building their team and they set out changing the advertising and interview process to focus more heavily on these areas.

Linda Hanson - Business Development for Contractors

February 22, 2007

Linda Hanson is a management consultant, business speaker and writer. She is President of LLH Enterprises with offices in Dallas and Toronto. Linda can be reached at lhanson@llhenterprises.com

She recently got my attention through a great article in IEC Insights magazine - unfortunately the article is not available online but several of her other articles are available on her website at www.llhenterprises.com

Cash Flow - Collecting Accounts Receivable

February 21, 2007

Bob Ring from Meyer & Depew Co. made some great points in a couple articles called:

Collect Accounts Receivable Fast Part 1

Collect Accounts Receivable Fast Part 2

Based on statistics about how many contractors fail each year about 14 contractors will fail in the next hour - many of these failures are due to cash flow issues. Do not underestimate the importance of cash flow for contractors.

Wal-Smart

I have not yet read the book Wal-Smart that John Moore discusses in his recent post called The DNA of Wal-Mart but can say that I've read other books that outline both the good and bad points of the Wal-Mart strategy.

The bottom-line is that many (all) of the things that Wal-Mart is coming under fire for today are only visible because they have become the employer of over 1,000,000 people.

If any of these same tactics were employed by a local business with 1-5, even 100 stores they would not be seen as negatives but rather extremely good, smart business.

The challenge that any business has is that when it gets to be a certain size the "rules" change - no different than IBM or Microsoft. The problem is that for a business to become truly great it needs to have some key traits burned into its DNA and that DNA is hard to change once the "rules" change.

Wanting to "put a PC on everyone's desk and own the operating system" is considered bravado by an excited company founder when the company is growing and few people understand what a PC is.

Burn that DNA into the company, work hard, add in a little luck and that same quote 20 years later when Microsoft really did own 95%+ of the PC market became the focus of anti-trust violations.

Wal-Mart is feeling similar things today that many great companies in the past have also felt. Don't let the negativity that dominates the news today cloud your judgement and keep you from taking away the truly great ideas that Wal-Mart brings to the table.

Maintenance Agreements

February 20, 2007

Adams Hudson of Hudson, Ink makes some great points in this article about Maintenance Agreements. Though this article is geared toward HVAC contractors almost any contractor can structure part of their business to focus on long-term recurring service contracts.

These may not seem like that big of a deal when you could be looking at millions of dollars in revenue from the next "big" project but when it comes to running a business building up a base of these "little" maintenance contracts is the smartest thing you can do.

Having regular work that can be done at any time (helps with scheduling) and is paid in advance (cash flow) and is recurring (no marketing / bid costs after first sale) and at the same time helps you sell project work.

Adams always has great ideas on marketing. Some of his past articles from Contracting Business can be found here and his website is www.hudsonink.com

The ABC's of Building a New Market or Business

February 19, 2007

CFO Magazine and Edward Teach had a great article about what works and what does not work when an existing business is trying to expand into a new market or start different type of business.

The article titled First, Forget What Works is based on the book Ten Rules for Strategic Innovators: From Idea to Execution and discusses several key points including both the need to forget the existing paradigms (to build something new and really be innovative) while borrowing resources and knowledge that gives the new venture a competitive advantage.

This balance is difficult to attain and the companies that master this balance will be more successful with starting up in new markets.

Contractors often under estimate how difficult starting a new market is - this article is a must read for any contractor looking to expand their business.

Non-Residential Growth Continues 2007 (Buidling Design+Construction)

February 18, 2007

Report from Building Design+Construction shows that non-residential construction will continue to grow in 2007.

Article builds on prior article describing 2006 conditions for construction.

2007 Construction Outlook - Contractor Tools & Supplies Magazine

February 17, 2007

Summary of survey by Contractor Tools and Supplies magazine outlining growth and changes in 2007 for the construction market

2007 Innovators (Professional Remodeler)

February 16, 2007

It's always good to learn what others are doing to innovate. This article is short and highlights 8 innovative companies using ideas that could easily be transferred to any other construction industry.

2007 Remodeling Company Innovators

Emerging Themes In Retail Development 2007

Complete article about 5 trends in the retail market by Building Design+Construction magazine

The Benefits of Adversity

February 15, 2007

Doug Dwyer (www.dwyergroup.com) brings us a great story about how adversity can go a long ways towards helping build a solid business or career.

There was a study once that showed strong leaders are built by either very good experiences or very bad experiences - the middle ground does not build strong leaders and only strong leaders can build strong companies.

Building a business is about building yourself and your team. Make sure you build systems in place where no one in the company is isolated from the challenges of the market place. Let the market place provide the highs and lows that build leaders. Don't isolate your team from the challenges of marketing, competition, cash flow or profitability. Let them learn from the experiences. You will lose people - you want to lose those people. The people who remain are the ones who will build your company.

2007 Survey For Remodeling Contractors

February 14, 2007

Growth Market: Business Results Survey Shows Growing Volumes, Profits for Remodelers

The Genius of the Five Why's

Such a simple concept....

So sad that it is not used more widely...

I wonder if it is because construction is dominated by type 'A' personalities and asking a questions is seen as a sign of weakness...

If asking one question is a sign of weakness then asking five questions must be utter incompetence...

I wonder if this is why we routinely see the people with LESS experience actually achieving better production once they are shown the basics of a Production Tracking system...

Perhaps it is because they are still asking why...

Read more about asking why...

Retaining Good Employees Takes Commitment

February 13, 2007

Excellent interview with F. Leigh Branham of Keeping the People, Inc.

There are a lot of great points made about how the construction industry treats people and often fails to do the basic things required to retain top talent.

One of the questions we get asked a lot is about compensation or bonus programs, what we have seen, what works, what does not, etc.

Mr. Branham makes a great point by calling it C-A-R: Challenge-Acheivement-Reward

I can not think of a better phrase for this and was just telling a client last night about using this strategy to provide bonuses and rapid feedback.

You can not expect results to be driven off of some formula based on company profitability that rewards each person in the company some little slice of those profits.

When you hand an electrician a check for $200 for a job that they worked on which closed out 6 months ago you have done nothing at all to drive performance.

On the other hand let's look at something that could truly drive performance. Let's say we had to hang light fixtures and there were 1,000 of them.

Per the estimate each fixture was suppose to be installed in 30 minutes - for a total of 500 man hours.

At this point in the job we look at the job cost report and see that we have already spent 40 hours just receiving and moving the fixtures around the jobsite, leaving 460 hours to actually install them.

Do a quick estimate of how long it will take to troubleshoot and punch list the inevitable minor problems such as bad ballasts and lamps that you will have with 1,000 fixtures, let's say we take out another 30 man hours.

That leaves us with 430 man hours to get these 1,000 fixtures installed.

Some quick math tells us that we need to get 18.6 (19) fixtures per day, per person installed.

We know that only 65% of the time we spend 'working' is spend on actual installation during the average construction day so we have lots of room for improvement and can easily set stretch goals a little high - 20% or 25% increased productivity is not an unrealistic goal.

Let's set the daily goal per-person for these fixtures at 23 fixtures and set up a little reward / competion system.

You have a four person crew working on this so it should take just over 2 weeks to complete (1,000 / 23 / 4 = 11 Days)

Step 1: Simple visual measuring devices are the key to good process improvement. People are naturally competitive. Put up a piece of sheetrock by the gang box or trailer and write the total fixture goal (1,000) and the total expected per person, per-day (23) on there.

Step 2: Make a simple table showing the four people down one side and the days across the top where they can write in the number of fixtures they installed daily.

Step 3: Setup short and long-term rewards. The short-term reward is that you buy lunch the following day for everyone who makes their daily goal. The long-term reward is that they can go home (with pay) early on Friday (day 10) if they get all 1,000 fixtures installed.

Step 4: Communicate this with everyone on the team

Step 5: Be a cheerleader - your job as leader is to MAKE everyone successful

Let's look at the math on this:

Let's say that setting this whole thing up and staying on top of the crew, being head cheerleader, etc. cost you 10 man hours. You had already spent 40 hours on logistics and planned for another 30 hours on misc. punch and inspection time.

You will have bought lunch for your crew every day for 10 days - about $320 or so.

If the crew really knocked stuff out they may have gotten to go home early on that Friday - or not had to come in at all depending on how much they accomplished. In any case they got rewarded and got a feeling of accomplishment.

If you are able to accomplish the goals outlined including sending the crew home early with pay you will have spent 400 hours out of a 500 hour budget - saving 100 man hours at a cost of $320. That's a good investment if I've ever seen one!

Even if you failed to meet the finish by Friday goal and worked the 11th day to finish up you would have spent 432 out of 500 hours, still saving 68 hours at a cost of buying lunch every day and making the work day fun.

People do really innovative things if given the chance and the productivity level in construction is so low that you can really beat the budget by an amazing amount if you get creative.

EWHotspots.com - Electrical Market Data

A good source of consolidated market data geared towards the electrical industry but containing information that is applicable to many contractors who may be doing market research or creating business plans.

Site includes reports by area including:

Electrical Product Sales Report
Building Permit Summary Report
Population Projection Report
Household / Housing Unit Statistics
Demographic Summaries

Learn more at www.ewhotspots.com