Business decisions are sometimes based on beliefs that are sheer nonsense. As you plan for a profitable new year, take a hard look at these ideas that sound good but have little validity.
Subcontractors are powerless
Subcontractors perform the majority of the work, and construction would stop if they chose to cease operations. You have the power of choice every day—what projects you choose to bid, what competitors you choose to battle, whether to drop difficult customers, or what contract clauses to negotiate. If you occupy a strong market niche, you have the power to select the projects you want to perform. Your power lies in the choices you make.
A bad economy is bad for business
No matter what happens in the marketplace, someone is making money. Investors such as Warren Buffet work the market cycles to their advantage. Knowing a little about economics helps, but you can also learn from the squirrels scurrying around as they store acorns for the lean times to come. If you treat your loyal customers well, perform impeccably, and are creative in finding new areas of expertise, you will be able to survive your own economic winters.
Profit is king
If you think of your business as a living organism, the profit feeds its growth, but the cash provides the water to keep its systems operating smoothly. Organisms can live without food much longer than without water. Liquidity, or available cash, allows you to fund emergency purchases, survive lender restructuring and continue to operate when receivables are uncollected. Don’t bow too low to profit because cash is king.
Healthy companies are debt-free
Contractors with a history of debt-free operation are usually determined to maintain that status. Though you can grow your business without borrowing, profits are seldom high enough to maintain asset levels and also allow the reinvestment you need to fund additional work. Leverage maximizes the efficiency of money in building the business, and by using other people’s money, you also share the risk.
Waste is inevitable
One hundred percent efficiency may be impossible, but you don’t need to accept the typical levels of waste. Recently, I toured a home-building program located within a state correctional facility. Because there were only two designs being constructed, and the historical data were carefully analyzed, the material waste was less than 1 percent. Even though the work force comprised transitional inmates who were paroled within a year or two, they achieved this level of efficiency along with a quality of workmanship that equaled the best I have seen anywhere. We get what we tolerate, and continuous improvement is always an option.
Successful, wealthy people are greedy
Regardless of what Gordon Gecko claimed in the movie “Wall Street,” it is usually not greed, but ambition, that drives success. If you are making a profit, or have a comfortable net worth, you will be accused of depriving others of their “fair share.” By running a successful business, however, you are paying more taxes than the vast majority of your fellow citizens and providing employment and benefits for those who help you make a profit. Don’t apologize for your success.
The customer is always right
No matter how often you say the phrase above, your employees know when the customer is wrong, and they probably make poor service decisions that drive costs higher. When the customer is wrong, the contractor should be able to correct misinformation in a professional manner without destroying the relationship. Instead, the contractor is so busy being defensive that he doesn’t listen, and the customer struggles to have his needs filled and regain a sense of control. Ask “What can we do to make things right?” and you will be surprised at how reasonable most customers will be. Unless, of course, they believe that greed is good or you have taken more than your fair share.
The boss is the most important person in the company
If you have the illusion that you are indispensable, test your theory by following the example of the contractor who called the office early one morning, declared that he was going on vacation for a month, and left one instruction: “Run it.” A risky technique, but he returned to find the company operating as always, which is what you should expect if you have hired and trained the right people. If you still have doubts, watching a few episodes of “Undercover Boss” should provide enlightenment.
As you plan for the new year, it’s a good time to reflect on your beliefs and identify any other nonsense that passes for truth. Your company will be better for the effort.
NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at firstname.lastname@example.org.