Growing Pains / Potential Contractor Failure
I just finished a conversation with a successful remodeler in Boulder, Colo. He is living in remodeling heaven: there are no more building sites in the city of Boulder. Boulder has very strict open space requirements that limit future development.
Because of this, homeowners who want something new have to either buy an existing house, knock it down and start over, or they have to renovate an existing property. Can you ask for a better marketplace? Our conversation, however, was not about how good business has been in Boulder. Quite the contrary. It was about overwhelm and burnout. This unhappy remodeler was tired of 12 to 14 hour days, and working on weekends. He was tired of the unceasing demands that his business requires of him. He has a 2 year-old son, his wife is 3 months pregnant with their second child, and he wants to spend more time at home. Business has been good. In fact, it’s been overwhelming. As contrary as this might sound, when business is too good, there are inherent problems that can undermine our best-laid plans.
Businesses that are ill managed and grow too quickly, can quickly go out of business. Last year, the Surety Association of America (SAA) examined 86 cases of contractor failure. Here is what they determined were the top 5 causes of contractor failure:
Unrealistic growth: This refers to an expansion in volume, work type, or work regions that are faster than resources allow.
Performance issues: This refers to the adverse effects of inexperience when a remodeler’s business expands too quickly, like taking on projects that require a steep learning curve that require new subcontractor relationships, project management techniques, or record-keeping systems.
Character issues: This relates to problems that arise that distract key personnel from the business of running a business, such as divorce, a death in the family, substance abuse, or emotional problems.
Accounting issues: This involves the failure to maintain solid accounting and financial management systems that accurately track cost and billing information on a timely basis.
Management issues: This is simply insufficiently trained personnel at the upper management or project level.
In this very thin and overworked labor market, there isn’t one remodeler I know that can’t relate to the list of problems described above. These are the problems that come with growing a business. But you can grow too quickly. Growing more than 20 to 25% per year can stretch the resources of any good company. When growing too quickly, cost controls and quality can suffer. Most remodelers I have spoken to, have grown their businesses by working longer hours. Remodelers know how to work hard. The sobering wake-up call comes when they realize, only some time later, that they did not made any more money working the 60 to 70 hour weeks, then when their business was smaller, with a lower volume and less employees. This is a very tough process for a remodeler to go through. Some remodelers respond by consciously downsizing their business, and going back to a level when they felt they had greater control. Sometimes, there is a sense of resignation that goes along with this downsizing. I’ve spoken with remodelers who question their ability to run a successful company. The remodeler in Boulder was considering a career change. He was tired of working so hard, and having so little to show for it.
Every successful business, not just remodeling businesses, must learn how to grow. Every successful business faces this same dilemma. The only way an overworked owner begins the process of stepping away from the demanding day-to-day details of a growing business is to delegate effectively. You do this by putting your expectations on paper. You do this by creating effective “standard operating procedures” that people in your company can follow to insure consistent results. You do this by finding the right outside help you may need to develop the estimating, accounting, and management systems that will help your business grow. This is the process every successful small business owner goes through. Here is the paradox: every good business owner is a control freak. It’s hard to let go of the very activities that you are used to doing on a daily basis. Successful business owners, however, are learning a new skill set. They are learning that to grow, and survive, both mentally and physically, means delegating the day-to-day details of running a growing business. They are learning to work on their businesses, not in them.