Читать книгу Construction and Contracting Business - Entrepreneur magazine - Страница 18
ОглавлениеTypically, successful entrepreneurs are eternal optimists. When presented with a challenge, they generally attack the problem without becoming discouraged. In fact, many consider difficult circumstances opportunities rather than setbacks—a minor detour instead of a train wreck. An excellent example of this is an excerpt from the movie Apollo 13 (1995), which is based on the true story of the ill-fated manned mission to the moon:
NASA Director: “This could be the worst disaster NASA’s ever faced.”
Flight Director Gene Kranz: “With all due respect, sir, I believe this is gonna be our finest hour.”
The exact number of business failures among contracting companies is difficult to quantify, and it is even more difficult to know the reasons for failure. In fact, some business shutdowns may not even be classified as failures. In some cases the owner retires or sells the enterprise to another business. However, a general consensus is that roughly one half of all contracting businesses fail to survive more than five years, which is not unlike other businesses. Once they reach the five-year anniversary, however, chances for continued success are higher.
There isn’t one single overriding reason why contracting businesses fail, but failures generally fall into several categories. We’ve touched on some in the course of this book, but it is a worthwhile exercise to review them. Most often, failure is not caused by a single factor but by several problems working together to sink a company. Among the most prevalent causes for business failures (listed in order of occurrence) are:
Very rapid growth not accompanied by a similar increase in resources. If a business expands too quickly, it often cannot keep up with demand. Quality of work suffers because inexperienced or unskilled workers are hired and put to work with little or no training. Shortages of equipment also plague companies that grow too fast; when several work crews must share one piece of equipment, productivity and efficiency suffer, along with chances for profit.
Financial issues. Improper budgeting and estimating, lack of cost controls, poor cash flow, and inadequate project management spell doom for many new businesses. Contractors must have more than creativity and technical skills to succeed in the competitive contracting environment.
Poor oversight and control at the upper management and project management levels. When key staffers leave the company, they are often replaced by personnel who are either incapable of doing the work or are poorly trained. When the general economy is doing very well, the pool of skilled laborers shrinks, placing more strain on newer businesses.
Other factors beyond the control of the owner. Economic downturns, high inflation, shortages of materials, or the dreaded “client from hell” can cause serious damage even when a contracting business seems to be running smoothly.
On the other hand, successful contractors share many similar characteristics. While there is no single formula for success, good contractors combine most of the following assets to establish an environment where success is expected, and usually achieved:
Good training for new employees
Good relationships with subcontractors
Competitive wages and benefits with excellent incentives
Low employee turnover
Excellent management of financial resources and cash flow
Cost controls
Accurate job estimating
Happy customers
Happy employees and/or subcontractors
Excellent communications with customers, employees, and subcontractors
Hands-on project management
Manageable debt
Ability of owners and managers to identify potential problems before they get out of hand
A cohesive and reasonable business plan
Staying on top of changes in the industry from new rules and regulations to the latest in tools and technology.
tip
Understanding how clients feel about your services is critical to success. One simple technique is to insert a short questionnaire with monthly invoices or post one on your website. Clients can rate the quality of your work, make written comments, and even request additional services. Making operational changes based on client input will not only help retain current clients, but will assist both sales and marketing efforts. If you are on Angie’s List (which you can register to be listed at www.angieslist.com), you can look at reviews, as is also the case on Yelp (at www.yelp.com) and other ratings and review websites.
Understanding exactly what angers clients the most about contractors and their services is an invaluable tool for owners. There are many resources available for owners to learn about the nature of client complaints. When a contractor understands the nature of a client, she is in a position to implement procedures to prevent trouble spots in the property development process.
Substandard workmanship is near the top of the list of client complaints. Clients expect the companies they hire to have skilled professionals, so if the work performed is unsatisfactory, trouble is right around the corner. Therefore, it is paramount that contractors properly train their employees and implement a good quality-control plan.
Often, contractors work inside a client’s home, disrupting normal family life. These clients prepare for the “invasion” and become very agitated if the work does not begin as promised or takes much longer to complete than expected. Contractors can make life easier for all if they implement a reasonable scheduling system and teach their employees to be respectful of the client.
Little angers a client more than a contractor increasing the price of the project after work has been started. To avoid this problem, contractors must plan projects accurately so that all needed materials are accounted for. Designing a precise and accurate estimating system reduces errors as well. When it becomes necessary to make changes, the client must be informed in writing and must agree to both the physical alterations as well as changes in the cost of the project. Never change a rate without informing the client in advance that the cost may be higher than anticipated.
stat fact
Approximately two-thirds of home improvement clients cited a personal recommendation from a trusted friend as the key reason for hiring a contractor; about the same number of contractors believe that clients chose them because of the quality of their work or because of a referral from someone the client knew. This means you should always be leaving a business card or two or three with each customer.
Most clients consider their homes to be their castles and are very proud of their ownership. Therefore, many of them become extremely upset when contractors do not clean up the job site both during the project and when work is completed. Failure to clean up a job site on a daily basis can give the client an impression that the contractor is performing shoddy work and does not take pride in what he does. While many people mention first impressions as an important factor when evaluating someone, the truth of the matter is that the final impression a contractor leaves when he or she finally departs the job site is more likely to be the dominant and lasting impression.
Clients pose all sorts of questions when choosing a contractor. Smart consumers talk to several contractors before engaging one to perform work. Contractors should be able to answer the following questions in a very timely manner. It should be noted, however, that clients appreciate it when a contractor or salesperson informs them that they do not know the answer but will get it within a day or two. Honesty is always the best policy. Be ready to answer:
Are you licensed or registered in this state?
Do you have adequate insurance coverage to protect my property and your employees?
What other projects are you currently working on? (How’s your schedule?)
Can you provide references? I’d like to see some of the work you’ve done that is similar to the work I’m having done.
Is your bid based on the same specifications as other bids?
Do I need a building permit?
How long do you estimate the job will take?
Once you start on my project, will you stay on the job until it is completed?
Do I have to make a decision right now? (The answer is always no.)
Will you give me a written contract for the work you propose to do? (The answer is always yes.)
Will you or someone else be doing the actual work?
Who will be in charge of the project?
While it is easy to find information and advice for consumers, much less is written about problem clients and how to deal with them. Some contractor associations offer advice, often through presentations at annual conferences, in their blogs, or even on their websites, about dealing with the problem client. When asked, most contractors will answer:
I do not like clients who
continually ask for work to be redone, or continually change their minds;
constantly complain and nitpick;
don’t pay on time, think you are their banker;
try to get you to do more work at no additional charge;
talk too much or watch you all the time.
Sometimes a contractor realizes that a potential client has a good chance to fall into the nightmare category. In this case, honesty is a good policy. Don’t be afraid to say to the potential client, “No, thank you, we cannot do the work for you.” However, some contractors simply raise their price in hope that the client will hire someone else. The risks in this approach is that the unwanted client will agree to your price or you get the reputation that your prices are too high.
Choose Carefully
When business is slow or the outlook for the economy as a whole is poor, competition among contractors can become intense. Competitors may drop their prices to levels below your break-even point. A contractor once commented, “Well, I’ll take on some of these jobs because I can make it up on volume.” Hogwash! It is silly to chase after these jobs because money lost on a project is gone forever. Another risk is actually agreeing to work for a nightmare client at a price just a few percentage points over your break-even point. Working with bad clients during tough times substantially increases the risk of losing money and certainly will result in anguish and unhappiness.
How to Handle Client Complaints
Few contracting jobs are 100 percent trouble free. Many times the problem, such as a weather delay, is not the fault of the contractor. However, all complaints must be addressed and dealt with carefully. The best rule of thumb is to approach every complaint with the attitude that the customer is always right (even if it’s not true). There are some national department stores that have even accepted merchandise returns for products it does not even sell!
This approach does not always result in finding that the contractor is at fault. However, problem resolution must be the highest priority for a contracting company. Clients appreciate it when a contractor works with them instead of against them to resolve a dispute or misunderstanding. The following guidelines will help resolve complaints:
Be courteous, and listen carefully to what the client has to say.
Don’t argue with the client.
Do not make excuses.
Resolve problems quickly.
Remember the importance of good client relationships.
Be reasonable even when the problem may not be your fault.
Make written notes of discussions.
The ultimate goal should be to resolve disputes quickly and to the satisfaction of both parties. Contractors who stand behind their work even when they are not at fault reap huge rewards over the long term. Reputations are made by happy clients and additional profits are made from their recommendations of your business. This is not to say that a contractor should back down to the client’s demand on each and every issue, but he must decide which battle is really worth fighting. If the marginal cost of resolving a problem is less than the expected long-term benefit, it makes good sense to spend the time or money to satisfy the client.
Remember, social media stretches far and wide, so people no longer just complain to their friend if they are unhappy with your services; they complain to thousands of readers at a time. Therefore, make customer service a very high priority.
The best-run businesses can be severely hurt by unreliable suppliers or subcontractors. When an entrepreneur has built a solid team, marketed its services successfully, implemented sound financial-planning procedures, and hired skilled and dedicated employees, he or she should be on the road to success. However, an efficient operation can become derailed if the materials needed to complete projects are not available when promised. The same is true when working with subcontractors: They must be reliable and complete their portion of the project both on time and within budget.
The best way to avoid problems with suppliers and subcontractors is to have an excellent communication system in place. While fax machines and email can facilitate the ordering process, we recommend that new business owners personally meet with their suppliers’ representatives. By getting to know your salesperson, you’ll be able to shortcut problems or bottlenecks and avoid unnecessary delays in the implementation of projects.
Customers Can Help
TQM, or total quality management, is an approach to management that seeks to improve the quality of products and services by modifying services based on input from customers. The TQM process can be divided into four distinct categories: plan, do, check, and act. The first step is to gather data about a problem area, the second is to develop and implement a solution, the third is to verify the results by comparing before and after data, and the final step documents results and makes changes.
TQM was first used at manufacturing companies but is currently used in a wide variety of industries, including contracting.
The old adage “You get what you pay for” is often very true when considering which supplier to use or which subcontractor to hire. While your own work force might be top notch, your image will likely suffer if the materials or subcontractors you use are below average. You need to delve into the industry and do some research on suppliers in your area. Networking with other contractors, sometimes through associations, can be beneficial when getting some information about suppliers. Even as competitors you can both benefit either by ordering in greater quantity, which will be a bigger order for the supplier and may also result in a supplier offering you some better rates as a means of saying thank you for the referral. The contracting business is usually a small circle in most towns and even small cities.
“Competition is what kept me playing the psychological warfare of matching skill against skill, wit against wit.”
—LOU BROCK, HALL OF FAME BASE STEALER FOR THE ST. LOUIS CARDINALS
Competition is good not only for the national economy but also for business. It forces business to eliminate waste and improve efficiency. The lifeblood of our free market, it rewards the most skilled businesses and weeds out the most inefficient. When poorly run businesses cease operations, consumers benefit because the overall quality of products and services improves; surviving businesses benefit because poorly run businesses place a drag on the entire industry, and once they are gone, its image can improve.
It is fairly easy to enter the contracting industry but much harder to rise above the crowd and dominate the market. One result of the relative ease of entry into contracting is that a segment of the industry is poorly managed, and a few bad apples can spoil the whole bushel. While some industries, and I’m sure you can name a few, have chronically poor reputations, a few others are always held in high regard, and the largest segment has a mixture. Contractors fall into this huge middle with plenty of rave reviews about some contractors countered with many complaints about contractors who did a poor job or took forever to complete a project.
stat fact
While entrepreneurs make up only about one-quarter of workers in the United States, they make up more than 60 percent of the millionaires.
Each entrepreneur should look at competition as a way to improve his organization’s performance and success. Success is achieved by gathering better information about customers and new products than your competition, using that information for making the best choices for your organization, and finally, turning the choices into actions that will provide a competitive advantage.
Never fear the competition. Never speak badly about the competition publicly. Just beat the competition with a better business plan, better financial management, better services and products, competitive pricing, and a reputation for doing good job.
As mentioned earlier, industry associations can benefit you as an entrepreneur. One excellent way to benefit from your competition is to join your local or regional industry association. Many of these groups schedule monthly meetings where members meet for dinner and listen to a speaker. It’s not only an excellent time to learn about new initiatives in the industry but also a very good time to network with other owners and learn about their problems and successes. Supplier members usually attend these functions and can provide insight into new products or methods of installation. Associations also offer educational seminars during the year for both the business owner and key employees.
Employers who stand still, never changing their methods of operation, will eventually get run over by their competition. Skilled entrepreneurs are constantly on the alert for ways to improve all facets of their business. They use competition to improve their skills and help develop products and services that consumers value highly.
In this era of specialization, the use of subcontractors has become very common. While there are many benefits to hiring a specialist to complete a portion of a property development project, caution is necessary. If the subcontractor is unqualified, the problems obviously offset the benefits. When hiring several subcontractors, the general contractor must have the ability to coordinate the work of these various individuals. In most projects, establishing a proper sequence of work is critical to success. The general contractor who hires the subcontractors must understand the responsibilities of each sub and how each fits into the overall construction sequence. For example, it is no use to schedule the asphalt contractor to install the driveway if the excavating contractor has not completed the rough grading.
Of foremost importance is hiring a subcontractor who is extremely reliable and able to meet the schedule established for the project. Because timing is usually crucial to a successful project, subcontractors must be able to complete their work in a timely manner. And because the best subcontractors are usually in great demand, a general contractor cannot risk losing the services of one sub because of the inefficiency of another. In addition, subcontractors must be able to meet the quality standards of the project set by the client, architect, and general contractor. While high-quality work is always expected of subcontractors, high-end projects with large budgets demand more skill and detail than low-budget projects. Subcontractors must understand what is expected of them and set their schedules accordingly.
An often-overlooked detail in hiring a subcontractor is insurance. When hiring a sub, the general contractor should be sure that the sub has proper insurance. While general liability insurance is very important, especially to protect against a lawsuit, carrying workers’ compensation insurance is critical. Insurance companies usually audit their clients each year; during the audit, they verify that all subcontractors carry workers’ compensation insurance. If they do not, then the general contractor will be charged an amount as if the subcontractors were employees of the company. It is not unusual for a general contractor to add 5 to 15 percent of the subcontractor’s fee to the client’s cost of the project, so an unexpected charge for workers’ compensation insurance would nearly erase the profit generated by the subcontractor’s work.
Approximately 50 percent of new businesses fail to survive five years; however, once the fifth anniversary is reached, success is more likely.
The primary complaint that clients have about contractors is substandard workmanship. Therefore, it is critical to hire quality employees and implement a good training program.
Learn to recognize the warning signs of nightmare clients, and either decline to work for them or take extra precautions when preparing for the work.
Because few projects are completely trouble free, learn how to handle client complaints in an understanding and professional manner.
Reliable suppliers are extremely valuable.
Competition can be very good for the best contractors.
Hiring subcontractors can be beneficial, but care must be taken to hire the most skilled and reliable.
Attention to detail is critical when working with clients, suppliers, and subcontractors.
