In this week’s episode, Stephen, Wade, and Rob are talking about the number one reason contractors fail: issues with management.
We get into why it’s crucial to have a strategic vision, why leadership and knowing when to trust your team to make key decisions can have such a profound effect on your company’s success, and the importance of having a solid succession plan in place if something happens to your company’s leadership.
Welcome to the Contractor Success Forum. On today’s episode, we continue our discussion of why contractors fail. This is part two on management, the number one reason why contractors fail. The Contractor Success Forum discusses financial strategies for running a more profitable, successful construction business.
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So today, as always, we have our three long-term construction industry professionals. We have Wade Carpenter with Carpenter and Company, CPAs helping contractors nationwide to become permanently profitable for over 30 years, that’s CarpenterCPAs.com. And Steven Brown, a construction bond agent with McDaniel-Whitley Bonding and Insurance Agency with over 30 years of experience in underwriting and placing bonds for contractors. See him at McWins.com. And me I’m Rob Williams, your profit strategist with IronGate Entrepreneurial Support Systems. I’m driving profits in contractors’ businesses with decades of experience in an actual construction company, as well as many other aspects of the construction industry.
The more things change in the construction industry, the more things stay the same. Interestingly enough research shows us that the lack of leadership in a construction company is the number one cause of why contractors fail? What constitutes a good leader? Let’s talk about that right now, today on the construction Success Forum.
Stephen, tell us about that. You’re the bonding guy and the underwriting guy. You know why contractors fail from a statistical purpose? Tell us about it. And what is this management problem?
Well, you know, management term is strategic vision, Rob, and strategic vision is part of communicating who you are and what you do, not only to your customers, but also to your employees. Have them buy into that vision. Leadership is something we kind of learned it in Scouts and from mentors, you learn it from other leaders.
But over my years of business, I’ve met some great characters and some great leaders, and the leaders always seem to have everyone on board within their organization and the clients know they’re different. They know they’re just a little bit better.
Yeah, I guess I’ve seen so many different businesses and different leadership styles and you have the residential guys that I spent the majority of my time in, and then the commercial contractors. It was dramatically different leadership style typically. A lot of times it’s just the lack of there being a leader in there and maybe having the, not the right leader in place.
Wade, what is your opinion? I know you’ve run across a lot of leaders in your business and seen people fail, tell us a little bit about what you’ve seen.
I wanted to kind to tell a story about one of my contractors. It was probably eight or nine years ago. He had a successful grading pipeline contractor. He did about $8 million a year and he owned his own land and shop outright, most of his equipment was already paid for.
The owner- I’m going to call him Bob, just to protect the guilty- he was a very personable guy and, he seemed to get along with everybody. But he was also the type of guy that you respected him, partly because of his demeanor, but partly because you respected his knowledge and he knew what he was doing.
And he had a crew that could run a job on their own with only minor instruction from Bob. And I worked with a different bond agent, it wasn’t Stephen, but he worked well with us and he was the kind of guy we liked to help because he listened and he implemented. And our requests; probably all three of us would agree that any contractor needs a succession plan in place.
And so he did put one in place. He actually had a brother that was part owner in the business, he lived several hours away. And then he had a son that was just getting his feet wet in construction. He kind of knew what he was doing, but he was still pretty green. And as part of his succession plan, he took out a million dollar life insurance policy that was payable to his brother on his death.
Long story short, Bob died suddenly. Obviously it was a shock to everybody, but between the brother trying to help and the son stepping up, they managed to finish up the bonded jobs. And even though they took significantly longer than they expected, they got through them. The brother, to his credit, put most of that million dollar life insurance policy back in the business.
They pretty much kept all their business, but within a year’s time, they had blown through that million dollars and they were essentially insolvent and they ended up having to close. And there’s a lot of lessons to be learned from that, but the wrong leader, even though we had a competent crew, it can go away pretty quickly.
It just goes to show that you need to have a plan in place and you need to have multiple layers of management.
Yeah. Getting those people on your staff that your company can run when you’re not there is really critical. Trying to find the right people, and then what is the incentive to get the right people to stay? Because most of our contractors came from somewhere else. They typically didn’t just come out of thin air. They started by working for somebody else and create their own company. So how do you go through those, progress? You build the people that you have, and they can be their own company, but then you also need to ensure that you’re getting your people happy that are running the company and knowing where you stand. Stephen, I know you had told some stories about having to have those people on staff to finish jobs and the right people in place too. Can you tell me about one of those?
Statistically speaking, they say, Rob and Wade, that having a strategic vision for leadership for the management of the company, for the future of the company. It’s the number one thing that keeps good employees there. You know, they want to have some stability and they don’t necessarily want to leave, but if they’re not being managed and if they’re not being communicated with and if they’re not challenged and then they feel like they don’t matter to an organization, then that’s your failure as a leader of the construction company of not communicating.
So what does that mean? It means taking your employees and embracing their experience and doing everything you can to help them learn, to become more professional, but become better at communicating and working with your client. That’s what I meant by strategic vision. I had a general contractor, Rob- this was a long time ago, but probably one of the best in their field. And they were in Louisiana and they did work all over on military bases. And as far as sales and execution and employees, everything was perfect. You couldn’t have had a more dynamic owner who made you feel like you were the most important part of their organization every time you met him. And also built up a great group of subcontractors. The one thing that he couldn’t do is, ultimately, is give the employees that he trusted more authority to make decisions. And on a certain job, the owner was just a crook. And we had met him, I had met him. He was a scum bucket. And for some reason, my contractor just was not going to let go. He had put on a lot of work with this guy and even when it was a HUD closing, when each page of the contract had to be initialed, his employees found changes that he had made from their original contract. And I said over and over again, you don’t have to sign this. It’s okay. It’s not that big of a deal, but he’s a scum bucket. It’s okay. It’s not that big a deal. Well, this one owner single-handedly gutted his company. It was absolutely horrific. Everything you could do was done.
Then he came between the GC and his favorite subs who were used to literally being paid before the GC got paid. He got in between them and started giving them direct change orders without going to the contractor. And next thing you know, the rumor was that the subcontractors were not going to get paid. And then they turned on him. So it was an absolute nightmare, but one of the lessons that I saw was that he just, he didn’t trust his key employees and their input.
Oh man. You know, there is that the aspect of working with employees, but then there’s also the aspect of management between the partners. I know I have seen many partnerships that seem like a business deal between the two of them or three of them, or four of them negotiating with each other, where rather than working with a team. Some business people feel like getting into that partnership is a competition on getting the very best deals. And I’ve seen those come and go and seen the fights, but I’ve also seen on the other hand, some great long-term partnerships where those partners were always looking out for the other partner. They were not adversaries, they were partners and every time they would have something, they would trust each other.
And over time they would trust each other because they were each bending over backwards to look at the contracts, like what you were talking about, Stephen, in the other person’s interest and make sure it was fair.
And this particular partnership I’m thinking about lasted, gosh, it’s been over 50 years, 60 years now. And even though one of them’s no longer alive, still with the trust and there’s still partnerships going and everything was worked out and I’d seen both of them partner with different people that come and go, come and go, come and go, but the two of their partnerships always worked together and that management team, they knew their strengths and their weaknesses.
So there’s a big lesson to be learned in working with the partners and picking the people that you know, and you can trust and that have the strengths that you don’t have, and that you may have the strengths that they don’t have.
And like Wade was talking about, that succession plan with the insurance, that’s just succession planning, that’s just something you need to do. You know, who’s gonna run things. If something happens to you?
The best one is your employees and having manager or partner that can handle the job. But most importantly is going forward, what is your company all about? And can you get others to buy into that vision?
I agree. Leadership and the strategic vision you were talking about, I think in my little story, that was the problem is they had a leader and nobody stepped up to be a leader. And that ultimately was the downfall.
That’s the leader’s job to provide more leadership to his organization. That’s part of it too.
Yeah, I’ve seen companies fall apart. I know when I took part in a lot of my leadership training that I had been coached for decades. And then when I began coaching it, I remember one company that I was actually involved in. I remember two of the owners wouldn’t even come to the meetings for the leadership. They were like, Oh, we, we gotta- y’all can handle it. It’s like, well, even if that leadership plan was developed from say, you know, me maybe, either being a consultant or knowing what I was doing along with some of the workers, if the owners aren’t even there to approve it, maybe they want the other people to develop, but there’s no buy-in. And if the owner does not buy into that leadership plan, then it’s not going to be bought into by the people below them. You do want the employees to be part of forming it, but the leader has got to grasp hold of that and sign off on that. And then talk about that plan and spread the word, spread the word of what this plan is throughout the company. What are your values? What are the right people to bring into the company, the right fits and what’s it going to continue as?
And also, look at some of your competitors. Look at some of the best contractors in the business. Look at their website. The websites always show what their vision statement is. Take for example, Bechtel, you know, one large construction companies in the world. They share their vision as being three things: anticipate customer needs and deliver on every commitment we make. People will be proud to work at Bechtel, and we will create opportunities to achieve the extraordinary, and we will reward success. Communities will regard us as responsible and responsive to contribute to a better quality of life. That’s their vision statement. So you have a vision statement and you work backwards to make sure you’re constantly trying to meet that vision statement. And as a result of it, your employees are happy. Your clients are happy and you believe it or not, or building a succession plan to your business; the ability to retire someday, the ability to trust others to do work. Take the stress off of you a little bit.
Oh, yeah. And you mentioned earlier, Stephen that one of the biggest contractors in our town, in Memphis, lives across the street, a hundred feet from me, but he’s got such a great website and the vision that he has formed, and he’s grown from, I remember doing work for him years ago and he wasn’t that big, and he’s really grown his company into a really large company. I couldn’t believe all the projects on his website, but the employees he has, are now going to take over and start running that company as he’s going into retirement. And I thought that was pretty amazing that you can get that, and just step aside, that’s the ultimate continuation and vision of being a success, for your company is when you can step aside. So that’ll be really interesting to see what happens over the next decade when he steps out.
Well, that’s, you know, that’s their slogan. Let us build a future together. What a great slogan. And then hiring people. Their vision is communicated on their website. We welcome thinkers.
Absolutely. I agree. Building a company is not just about like, you know, how can we get the job done? It’s about building the next generation and getting them to buy in is not always easy, but I think it’s a key part that everybody that runs a business should always be thinking about how do we bring that next group of leaders in.
Well, it is amazing. I was really surprised because I thought the changes in the economy, or maybe some kind of cashflow thing would be the number one reason that contractors fail, but management, and as you explained, management includes the things that the employees can be doing that cause you to fail from contracts to other things.
So I’m really glad you brought that up, Stephen and pointed this out as a great topic for today. It’s our time is running out. We could talk about this a long time, but management and, and getting everything in line being the number one reason contractors fail is really, really a shocker to me. But you gotta, you gotta stay on top of that. And it’s not quite as an exciting topic to talk about, and it’s a little bit hard to take those tangible elements on what you can do to get that management going. It’s a little softer topic.
Right. Last time, we threw the subject matter under accounting because it was all about failure to account, and management can sound pretty boring too, but failure to manage, failure to lead- I think that’s the main topic of this week’s Contractor Success Forum.
Well, thanks a lot today. This has been the Contractor Success Forum, and amazingly, why contractors fail? The number one reason is the lack of management. So pay attention to that lack of management, get the management skills, stay on top of those things. Don’t ignore them. I know you get busy in your jobs but you are no more than your subcontractors and your employees. So that is what makes you. Keep that management going and find us at the Contractor Success Forum. We have Wade Carpenter with Carpenter and Company, CPAs, CarpenterCPAs.Com. Look at our show notes also to find all this information. Stephen Brown with McDaniel Whitley Bonding and Insurance Company, MCwins.com. And I’m Rob Williams with IronGate Entrepreneurial Support Systems. Driving profits in your contracting business. So everybody have a great day and we’ll see you on the next episode.