There are some highly interesting statistics on the SBA fact sheet from August 2018, including one that states that only about 50% of new businesses survive for more than five years.
Most bonding companies will place limits upon start-up construction companies during their first five years in business, irrespective of the financial backing they may have. This is especially true if the business is pursuing high-risk or high-profile projects. You really can’t blame them, because in addition to the 50% survival rate after five years, merely one third of all business survive at least ten years.
Our inclination to do business with current or former entrepreneurs is determined in part by their attitude.
We seek to discover to what led them to start their own business, as well as what has kept them in business (or, alternatively, why they are no longer in business). Every week, we speak with past business owners from the construction industry who tried the entrepreneurial route and became one of the non-surviving statistics.
These former construction entrepreneurs usually share some common reasons as to why they are looking to work for someone else, including excelling at or enjoying a specific role in our industry (such as estimating or supervising the field). They want to be able to take on a specific role, instead of being responsible for running the overall business. Often, they had partners who were able to compensate for their weaknesses. The partnerships typically fell apart as one or the other forgot that relationships are not supposed to be mere avenues of self-service. We listen for what they have learned about the responsibility of ownership. In particular, we want to ensure they appreciate and respect working for someone else again, rather than merely looking for a stopgap until they can try again to open a business of their own.
Steve Tobak, author of Real Leaders Don’t Follow, wrote a piece for Entrepreneur magazine in 2015 entitled, “The Only Good Reasons to Start a Business” , wherein he writes the following, “Look at it this way. Markets are competitive and customers couldn’t care less about your self-serving motives for being in business.” They have a need and need you to service that need as the expert at a competitive price.
All too often, companies in the construction industry fail as a result of a mindset that says that they have a sound business so long as they have an ongoing project or projects. But, once they finish the project, or once their client runs out of work for them, they can’t afford to pay the overhead. Business owners who are not working ontheir business, and merely working intheir business, will often find it is just be a matter of time before they become one of the SBA failed business statistics. The goal therefore is sustainable growth.
The right leadership attitude, combined with sustainable growth, builds resources to navigate and ride out the storms that are bound to happen. Owners of companies can place their businesses at risk when they start unrelated businesses or expensive hobbies without accounting for their replacement of time and responsibility, or without making sure the cash required for the diversion does not jeopardize the business they have worked to build.
Speaking from personal experience, building a business requires perseverance, sacrifice, and time. You may object that these traits are required of employees as well, and while that is true to a degree, there is a major difference between owners and employees, namely, that employees do not bear full financial risk. If an employee loses his job, he loses income created from that job. If a business owner is forced to close his company, he loses not only his income, but also (typically) the time and costs he invested, which far surpass an employee’s responsibility, and which often are attached to personal assets or investors from whom they will still need to recoup.
Employees that understand their contribution to revenue generation and expenses create value for themselves by having a fiduciary mindset, which means that one acts in the best interest of the company for which one is employed, irrespective of personal views or circumstances. Whether you are the entrepreneur or the employee, learning to recognize how your role affects the other areas of the company enhances stability for you for it. Sometimes those responsibilities are shared and sometimes they are separate people or departments.
A start-up company may have one person responsible for ensuring the entire back of house, including Office Management, Administrative Support, Financial and Accounting, IT, Human Resources, Contract Administration and Legal and Compliance. As a company grows, this person’s responsibilities may branch off. The ownership of the company is ultimately responsible to make sure someone knowledgeable is assigned to take on the responsibilities. Ownership pays either way, either by assigning someone to take the responsibility, or being penalized for not adhering to the regulations set forth in business.
Whether you are an employee or employer, recognize which areas need to be covered in a construction company.
- Office Management / Administrative Support
- Financial and Accounting
- IT/Technology Integration
- Human Resources
- Marketing and Business Development
- Preconstruction /Estimating
- Contract Administration/Legal/Compliance
- Project Management
- Field Operations / Self Performed Operations
- Fleet Management/Warehouse Management (where applicable)
- Project Close Out / Warranty / Service Work
Other ways companies fail include aligning themselves with clients or taking on projects for which they do not have the right resources or relationship.
Cash flow is king, both for sustainable growth for employees and for the company itself.
So, who’s more at risk, entrepreneur or employee? We all need each other to be successful in the path we choose. Choose wisely the path best for you, your family and your future.
Very interesting Suzanne. Well said.