This article is from Business Owner Magazine published by the management consulting firm, Global Resources.
By Joe Polizzotti on Oct 25, 2011
It takes a certain type of mindset to lead a construction company to success.
Most construction company owners started out working for someone else, became experts at a technical skill and then decided to go into business for themselves. Their desire for independence is rarely motivated by money. Rather they are entrepreneurs who want to steer their own ship and control their own destiny. But while an entrepreneurial mindset is necessary to get a company off the ground, it’s not enough to run a successful construction business.
The entrepreneurial mindset is one of “Yes, I can.” Entrepreneurs don’t believe they can fail and see every problem as an opportunity to be conquered. They have a vision and a powerful drive to achieve it. That’s why entrepreneurs are good at conceiving and starting businesses.
But once the business gets off the ground and starts to grow, the owner has to evolve from entrepreneur to CEO. Vision and drive are still important, but operating a successful business requires a whole new skill set. In fact, entrepreneurs don’t usually make good business managers because they would rather look for new opportunities and develop new ideas. They are bored by dayto- day management chores and don’t have the patience to develop and study operational reports.
Entrepreneurs who fail to evolve into CEOs as their companies grow tend to become “worker bees,” so stressed by putting out the day-to-day fires of the business that they forget why they went into business for themselves. They wanted to be their own boss, work less and spend more time with their family. Instead, they end up as captive slaves, working in the bowels of the ship, six or seven days per week.
Another contributing factor to this trap is that entrepreneurially minded, highly skilled business owners tend to be perfectionists. Believing they are the only ones who can do anything right, they see no need to hire a good leadership team that can share the management burden. Furthermore, with a “superman” or a “superwoman” taskmaster at the helm, employees never learn to make their own decisions because they expect to be overruled if they try. They defer to the owner for every little matter, which robs him or her of the time that should be spent focusing on the big picture.
As a result, employees don’t grow professionally and cannot contribute to make the business profitable.
To avoid this vicious cycle, here are four key steps entrepreneurs need to take to become CEOs:
- Change the mindset from worker-bee to CEO. Owners are, by nature, “doers” who feel worthy when they are “doing something.” The problem is they may be simply spinning their wheels.
- Create a business plan and stick to it. Focus on executing strategies with the big picture in mind.
- Hire or develop an effective leadership team. This includes defining the leadership team’s roles (including the owner’s own roles) and holding everyone accountable for results.
- Develop minimum standards for employees. Require key people to hold employees accountable for results, not for just putting in time. Without minimum standards, employees will set their own, which are probably not going to be in line with the owner’s standards.
With these components in place, the business will become profitable; the owner can focus on leading, rather then working and will have time to spend with family. Employees also will be more productive and engaged because they know they are part of the solution, not the problem.
Tools for Profit
Let’s look at some of these factors in more detail at an actual business: Onslow Stoneworks Inc. in Swansboro, N.C., which imports, fabricates and installs marbles and granites. For owners and President Mike Schott, working with stone and granite is a family tradition, going back to ancestors who came from Italy and owned granite quarries in northern New Jersey. Last year, revenues were just $1.5 million, down from $3 million a few years ago. “We were suffering terribly last year from lack of business,” Schott explains. “In addition to the sharp downturn in the construction industry, a number of other stone companies had branched out and opened up, and competition was fierce.”
Schott’s greatest worry was that a large percentage of the business came from a national chain and produced very low margins. He felt very uneasy about this unprofitable work and doubted whether his business skills were sufficient to sustain the company under these conditions. With the help of an outside consultant, he took the steps necessary to turn the business around.
One measure was to adopt a format to control inventory. “We set up a square footage matrix, which, for the first time, gave us a clear understanding of what waste meant to our bottom line,” Schott says. “In the past, we used to purchase raw material and use it as needed, and although we were careful to avoid waste, we never really saw the full picture.”
Another success strategy was to reformat Quickbooks to accommodate waste, cost and job tracking. “We’ve always been good at what we do professionally, but we were not as proficient when it came to finances and tracking our true costs,” Schott says. “Now we finally have the financial reporting tools a successful business needs to have.”
Using these new tools, Schott established how much square footage the company needed to produce per day, per week and per month.
“In the past, we did not price based on square footage,” he says. “Now, our financial tools help us understand where our line in the sand is as far as profitability is concerned. We know how aggressive we need to be to obtain jobs in a very competitive market and how much we need to produce to meet our projections. Knowing what our costs and margins are makes it much easier to price, track and stay on course.”
These new insights, in turn, allowed Schott to make the low-margin work for the national chain more profitable. “Knowing how much square footage we have to install per day to make a profit led us to change how we schedule jobs,” he says. “We consolidated trips—delaying some jobs and moving others up—to achieve significant reductions in travel time. We now make money even with low margins.”
Now, Schott has peace of mind knowing that the business is profitable. “A business owner gets up in the morning for the thrill and the excitement of making money,” he says. “As a side benefit, we love what we do. The idea is to combine both to make a living.”
“In order to do that, you must be 100 percent certain what the hard costs are, and you have to have the tools to evaluate how efficient you are so you’re not relying on gut reaction, but on black and white reports,” Schott continues. “If you don’t know what your true costs are to produce your product, how could you expect to stay alive when margins are so tight these days?”
Although entrepreneurs don’t usually start a business with the sole objective of making money, the only reason for being in business is to make money. Doing so requires more than an entrepreneurial mindset. It requires an organizational structure headed by a leadership team whose roles, responsibilities and accountabilities are clearly defined, and a system that allows the company to run without the hands-on, worker-bee involvement of an owner who has to make all the decisions and is the only one who can do anything right. The owner’s job description is to ensure enough business is being generated and then manage people to perform quality, on-time work so the company can make a profit.
The four principles of running a business are: Get the job done on time or sooner, within budget or less, without rework or overtime AND with control over material costs. Those four factors guarantee success. When one or more are absent, there cannot be a consistent profit, and the firm will wither away and eventually go out of business.