Defining everything it takes to be a good contractor would be a very long list. But last month (in Part 1 of this article) we developed the following list of management skills needed by the good contractor and reviewed the first two in detail. We will cover the last three this month.
- The organization
- Project control
A company can't expect to function at its highest level unless it is good in all of these areas. Poor performance in any one area will reduce performance in the others. But you may not have the time and resources to work on all areas at once, so, if you are not yet the “good contractor” described here, survey your weaknesses and pick one area to work on first.
A good contractor has superior estimating skills and systems to manage costs. You must find and implement the best system for estimating and require feedback throughout your system. An estimator who never learns if a project was successful, and therefore if his estimate was on target, is like a bullfighter who closes his eyes after the bull's first pass.
Customers are the only means for contractors to generate profits. No customers, no profits. Good contractors take care of customers at all cost and thereby create satisfied customers. But sometimes you need to “fire” a customer. There are many reasons you might drop a customer—they do not pay on time, they retain your money for an unreasonable amount of time, they do not pay for change orders, or they allow unsafe conditions onsite that endanger your most important assets (your people). If you drop up to 10% of your customers annually, within seven years only the best customers will remain. Use this approach with caution. It means you will have to work harder to keep your good customers, but at least your efforts will be worth it.
A well-defined market niche with a great marketing strategy yields success. A good contractor will not chase every job in every market in every market niche. You must understand your market and have a 12- to 36-month plan to grow within it. By following the plan and growing at an appropriate rate, you will have a better chance at success.
Everyone in your company must be a great salesperson. Everyone needs to understand the value of a customer and be prepared to keep the customer happy at all costs. That does not mean that every level of employee is authorized to spend any amount of money to satisfy a client, but they should have a reasonable expectation that if they do something to keep a customer happy, the company will support them.
Project control Over-manage projects
Good contractors have people and systems in place to manage their projects. The more you manage a project, the more successful it will be. This does not mean that you have everyone in field management on the jobsite at the same time. It means that you need to pay attention to the project and have an early warning system to alert you to potential problems. Recognize the importance of your project managers and project leaders. They should be good business managers, planners, and communicators as well as builders. Support them with the training, technology, and tools needed to manage the job right.
Good contractors avoid going to court at all costs. Sometimes it's required but only in a case where your company is in danger of going out of business. A contractor who goes to court rarely wins.
Focus on your field managers. Let them know that they are the key to improving productivity. If you train them to find, analyze, implement, and measure ways to improve their processes, they will. Let them experiment. Share their successes, and encourage others to reach for tough goals. Focus daily on productivity.
Most companies eventually will have a crisis. The good contractor prepares for this contingency and then gives thanks every day that the crisis management plan was not activated. Practice the drill on a regular basis. Every six months bring the team together and have a mock disaster. Role-play what everyone must do. Practice in front of a video camera. Be prepared and pray that you never have to implement the plan.
- Do you have enough insurance coverage on the right people?
- Do you have insurance on the owner(s) equal to 10% of the current backlog?
- Do you have a shareholder's agreement detailing buy-sell arrangements under every possible scenario, with proper funding?
- Do you have a shareholder's agreement for multiple shareholders?
- Do you put owner's children into management positions only when they are qualified and interested?
- Do you have a detailed business plan that is reviewed and updated quarterly?
- Do you have a detailed listing of strengths, weaknesses, opportunities, and threats with action plans and assignments for each area?
The answer to what makes a good contractor is not simple. Good contractors excel in a range of areas achieving a variety of successes, and that process happens continually. When you complete work on one area, it is time to start working on another. Good contractors do not go broke. They will be with us for a very long time. Will you?
—Brian Moore, a senior consultant with FMI, can be reached at 919-785-9269 or firstname.lastname@example.org.