Paradigm shift

By Dan Schneider as featured in Construction Today

An owner’s mentality can drive company culture to either inhibit or stimulate innovation.

More than 400 construction company owners and various contractors who were recently surveyed were asked, “What business are you in?” Only one business owner answered the question correctly. The wrong answers went like this: “I’m in the construction business.” The right answer came from a plumbing contractor who said, “I’m in the sales business, and I just happen to be really good at plumbing installation, service and project management.” That plumbing contractor is doing very well at a time when many other construction-related businesses are failing or stagnating and are blaming the economy.

To change the construction owner’s mindset to that of a sales person is very difficult for most owners. They enjoy contracting, carpentry, plumbing, roofing, building homes and project management, but they do not feel comfortable in the sales role. But these are difficult times for the construction industry, and only a radical change in perspective will save companies and lift them out of failure or stagnation.

Once an owner realizes he or she is in the sales business, it just becomes a matter of mastering the sales process. Then, the contracting, building or project management process can be modified according to what the sales process is selling. Waiting for the phone to ring is not working these days. While the owner is waiting for the phone to ring, competitors who knew all along they were in the sales business have already beaten them to the punch and captured their customers.

During a similar slump in the economy after 9/11, the most successful business owners were the ones who understood they were in the sales business and put all their resources into selling and capturing additional market share. One example was a general contractor who transformed all his field project managers into sales people. They blitzed the marketplace and were able to gain more profitable business. Once a sales backlog was established, the project managers returned to their respective field positions, doing what they did best. Today those companies are repeating what they did then and are again increasing their market share.

Changing perspective

Once a company takes its eyes off the sales ball, the only avenue left open is to reduce costs. That’s where the death spiral starts, and they keep cutting and cutting while their sales-oriented competitors take more and more of their busines. There is no such thing as cutting one’s way to profitability.

When asked about the root causes of loss of profitability and decline in sales growth, 99 percent of owners blame external factors such as the economy, competitors, banks, etc. Actually, the root cause of stagnation and decline is always the owner’s attitude and lack of drive to succeed. Those who consider themselves at the mercy of a dying industry, or of banks that refuse to make construction loans, allow themselves to be crippled and become victims. They play a game of “pity me” rather than “when the going gets tough, the tough get going.” When the owner has such a losing mindset, it permeates the organization and everyone gives up.

Only a radical change in mindset can save the business. Decide not to let the economy, the banks or other external factors kill the company without a fight. Then, be in the selling business.

Red ocean or blue ocean

In Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, authors W. Chan Kim and Renee Mauborgne explain how innovation can render rivals obsolete and create new demand. In the current marketplace, most people just see a red ocean filled with numerous competitors, large and small, who fight for the same market share. The challenge is to jump out of the red ocean into the blue one to find a new market with little competition and high profit margins. There is a tsunami of money roaring toward the construction industry from the economic stimulus package, and it behooves construction businesses to understand where that money is going. Since much of it will be dedicated to green construction, everyone in the construction industry today should become familiar with the U.S. Green Building Council’s LEED program, which certifies sustainable building projects, as well as with the Green Building Certification Institute’s LEED Professional Accreditation, which certifies contractors who thoroughly understand green building practices and principles.

Now is the time to get certified quickly and step into the ballpark to be ready when the funding arrives. Research the stimulus package for opportunities and follow the money, whether it’s installing solar roofing or green siding. Learn to sell benefits. Appeal to emotions and understand buying motives. That’s how the sales team will create a differential that leads to increased profitability.

Work on the business

Perhaps the most pervasive problem in the construction industry is that owners work in the business rather than on the business. By working in the business, they become part of its inefficient processes and problems. The solution is yet another drastic change in mindset: Owners need to realize they should be working on the business. In that new role, they need to set goals and objectives for every position in the company and develop leading indicator metrics for each part of the business process: sales, operations and finance. Leading indicators in the sales process, for example, may include number of prospects contacted, number of prospects turned into bids or number of bids turned into orders. No company runs well without such metrics.

Owners who work on the business are more likely to find creative solutions, such as becoming their own bank when money is tight. The way to do that is to accumulate a cash reserve through prudent cash management. The cash management process is basically weekly meetings between the owner, the bookkeeper or controller, the purchasing manager, the field operations manager and the sales manager. One of the purposes is to plan a line item called cash reserve. Each week, a certain amount of money is set aside to be available when all else fails.
Snap out of it

Company culture either inhibits or stimulates innovation, and it is always driven by the owner’s mentality. Owners who consider themselves victims of circumstances generally create a culture in which employees cannot be innovative either. Everyone who adopts a “poor me” attitude is, in part, responsible for creating a self-fulfilling prophesy.