Do you ever feel like your business is stuck in survival mode, even with growing sales? Many business owners find themselves stuck in what we call the Survival Trap, and this week we’re talking about how to break out of it.
Topics we cover in this episode include:
- The Business Hierarchy of Needs
- How to discover your business’s vital need and how focusing on it will help you get out of the survival trap
- Why using instinct without a third party’s insights might not lead you to the best decisions in your business
- How focusing on sales alone will keep you in the Survival Trap
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
[00:00:00] Rob Williams: Welcome to the Contractor Success Forum. Today, we are talking about the Survival Trap.
On the Contractor Success Forum, we discuss financial strategies for running a more profitable, successful construction business. Check out our show notes for more information on the Survival Trap.
Today we have with a Stephen Brown with McDaniel-Whitley bonding and insurance agency with over 30 years of experience underwriting and placing bonds for you as contractors. And we have Wade Carpenter, Carpenter and Company, CPAs, helping contractors nationwide to become permanently profitable for over three decades. And Rob Williams, your profit strategist, that’s me. IronGate Entrepreneurial Support Systems, helping you drive profits in your businesses with decades of vertical integration as a contractor, manufacturer, aviator and financial strategist in the construction industry. So Survival Trap. Wade and Stephen, what is this Survival Trap? Who wants to talk…
[00:01:20] Stephen Brown: Maybe Rob, it’s when you buy an airplane and you don’t have any more cash run your job.
[00:01:27] Rob Williams: That’s one of them. Wade, you want to start in, in, on the Survival Trap? You want me to talk about it?
[00:01:33] Wade Carpenter: Stephen’s hitting a little too close to home there, right?
[00:01:35] Rob Williams: Yeah. Very close to home there.
[00:01:37] Wade Carpenter: Well, the survival
[00:01:38] Rob Williams: we
[00:01:38] Wade Carpenter: trap
[00:01:38] Rob Williams: to our jobs, man. We gotta get there fast.
[00:01:41] Wade Carpenter: Yeah. The Survival Trap is actually something that Mike Michalowicz talked about in Profit First, as well as one of his newer books, Fix This Next. I think we all pretty much have different definitions of that. How do you get out of it? A lot of people just start a business on a shoestring budget and they end up taking things they shouldn’t, and it becomes a cycle and they never get out of the cycle. They never think about how to get out of the cycle. I know Rob is actually a Fix This Next certified advisor as well. So Rob, you wanna jump in a little bit on this one?
[00:02:17] Rob Williams: When you get there, you’ve got this Point A, since this is audio, most people won’t be watching this, we’ll do dramatic descriptions here. So we have, you’re in this, you’re your point, and you need to do something. You’ve got to survive. You’re in a situation to survive, what are you going to do? You’re going to do something.
So you do something. And in that point you go and you arrive at a new point. Now, if your goal is B, what you did in desperation to maybe try to get more money or something, is you did something, but it got you further from your goal. Maybe you took a job for some quick cash flow, but it’s a lower margin. Or you had to buy some equipment for something, then pay those notes over the next thing you, you did something to get out of this point to survive. But did that get you closer to the goal of where you need to be, or did this put you more and more into a hole? That’s what usually happens when we have to survive. We as contractors, we do something and it’s usually get more jobs. Get more something, get more equipment, get a new, a new type of skill or something that we can do, even though there may not be a good business behind there.
And eventually, it brings you further and further down instead of getting there.
So, in talking about that, how do you know what you should be doing? And what we talk about is what is that vital need? What is that next step? So that vital need, that should be getting you out of this point and getting a closer to your goal on the next point, rather than getting further and further away from your goal.
We have a business hierarchy of needs. A pyramid. And so what you have to do, it’s just like in construction. That’s really one of the things I like about this. And if you’re looking, if you’re listening, you can’t see this, but on the bottom– actually maybe I won’t even put this up here and I’ll describe it better.
The bottom, your foundation of your pyramid is your sales. So you have to have a certain amount of sales first, and then once you get over your, the hump of having enough business to at least if your business was profitable and the right things would happen, then you’ve got that core need of sales.
It’s just like the Maslow’s Pyramid where they talk about the different stages of needs. So this is your business needs. So your sales, but that sales is not always the answer. So you, once you get that significant amount of sales, the next is you got to make a profit at it. So that’s the next layer of your building blocks on this.
And then after you, you get that profit, you get the margins in there. Well then, you’re in chaos maybe. And you may need to organize all your people. We call that order. And when you get that order, that’s your, your organization. How do you deal with your people? The meetings, the communications, all those different things. And you step up and then you get your impact and then your legacy. Those are the top two pyramids.
But your business is a cycle. Just because you’ve gotten to order or you’ve gotten to your profit, it doesn’t mean you don’t need to drop back down to sales. But the important thing is to identify which level of the pyramid, which of the lowest levels of the pyramid you need to fulfill to get the other things.
People tend to go back to sales and yes, that is at the bottom, but maybe they’ve already got enough sales. So they, if they had the proper profit margins on there, they’d be making more money or as, Wade does a great job of talking about, maybe it’s cash flow, not really even profit, it’s the money.
But if you identify that vital need that’s going to get you closer to the next step of your goal. Not just get you out of, we were talking about a pothole, not getting out of the pothole at this moment, but yes, you want to get out of the pothole, but don’t go right back into the traffic and get smashed again. So does that, does that have…?
[00:06:44] Stephen Brown: Wade, what do you and Rob do when you have clients that are heading into this Survival Trap and making dumb decisions based on stress and the immediate needs?
[00:06:57] Wade Carpenter: Well, I think I kinda need to back the truck up a little bit, and I’ll explain a little more from, what Rob was going into. Mike Michalowicz kind of modeled his business hierarchy of needs after Maslow’s, basically our survival hierarchy of needs. And it’s the bottom level on that is like, you’ve got to have air and water, and food and shelter and those kinds of things. And what is instinctual built into us with that is not built into a business owner. And it, theoretically, it sounds great that, yes, I just need to go get some more sales, but a lot of times the answer is not instinctual.
I don’t want to go down the rabbit hole, but I know in my case, when I started mine, I read Michael Gerber’s “The E Myth”. And I worshipped that book. And I still believe in that book, that you got to build the systems. For a long time, I was like, at that order stage before I even, you know, Field of Dreams, “build it and they will come.”
I was building systems, but I, number one, I had to build my client. I had to have a team for those systems to work. And a lot of times it’s just not instinctual, what you need to do. In construction, a lot of people think, well, I just need more revenue.
And we’ve talked about that many times.
[00:08:16] Rob Williams: Yeah, no, that that’s great because that was the next topic, or point that I should have said earlier. It is the instinct you ask, what do we do about it? We actually have a survey. I have an online survey that people can take, a questionnaire. It’s very simple. It just asks 25 questions that define, what is the lowest part that they need to get fixed first.
But what’s actually happened with that is it’s people cannot… their instincts on their own business, they need a third party to help them look at this. Because for a year or two, now we’ve had that survey out. But what Mike has found, Michalowicz and us in the group is that people don’t, they’re not able to identify the correct answers without a third party.
Mike talks about when you’re walking down an alley and you get this weird feeling that may be something’s about to happen, you turn around and go the other direction. In life, your instincts are pretty good. Your survival instincts. In business, those survival instincts don’t work. Running your business on your intuition, what we’ve found is they’re not typically the right answers.
So you have a third party person to walk you through this 25 questionnaire and discuss these, we can help identify what that lowest vital need is, and then we have a method for helping you get out of that situation. How do you identify it and what are your key points that you need to focus on to get out of that?
[00:09:55] Stephen Brown: That’s a good point, Rob. I’ve had contractors before say to me, in response to a bond underwriter’s questions, who cares if I bid a job at cost? That’s my business. And the problem is, is when you’re in survival mode or you’re bidding jobs at cost, you don’t know what your cost is. You don’t know what the other bidders are bidding. And so next thing, you’re going to make your price lower to get it. And then you’re losing money and then you’re going backwards and then there’s even more stress.
And there’s a way to work around it. Sometimes you just need an extra person to bounce things off of. And I liked this idea that the Survival Trap is something that can be avoided before it happens. And that there’s something that you can do when you’re in a moment of crisis running your construction company.
[00:10:50] Rob Williams: Yeah. One thing, I tried to build a computer program when I first got Fix This Next, that was question and answer until we realized it’s kind of, it’s not very useful. People just can’t do it on their own because they can’t identify it.
But that very first step in the pyramid is the lifestyle congruence over there. And that’s always the first step. And what lifestyle congruence means, it means, does the amount of sales that you have justify your lifestyle? If you can improve things, and there’s actually a way to do that. So whatever the formula that you would be taking the money home out of– what we, using Profit First, let’s say it’s a small business, it might be 45% if you’re doing most of the things yourself. Or it might only be 30%. Whatever your money that you take home after taxes, if you know to survive in your lifestyle, that you have to have say $10,000 a month or $5,000 a month, just for the math. Then and say, if it’s a 33% margin, well, you better have at least $15,000 of sales because you just take that lifestyle congruence, divide it by– this is a little complicated. I’m realizing it as I’m saying this, but you, you divide it by the percent that you should be taking home to find out if you’re over that lifestyle congruence thing. That’s, that’s the very first vital need of the very first step in the pyramid. And that’s the first thing that we always go over with people is finding out whether we can get that.
There, that’ll be a freebie. We’ll make sure we get a lifestyle congruent sheet in our show notes. Just a little formula that I’ve already worked on a sheet on that. So. Just send that in there and we can email that to you. So, in the show notes.
That’s the first step that we always go through. It’s kind of like in Profit First, the first thing is open a bank account. So the first step of this, make sure your lifestyle congruence is, is good. So we’ll, there’s a freebie for you and we can email you that, that sheet.
[00:12:54] Wade Carpenter: Yeah.
If I can. I like to go back to what was Stephen was saying too. A lot of contractors will jump out in business. They get mad at their boss and they got their pickup truck and they go out on their own, and they take something that they don’t, you know, it’s a lower price, but there’s like, it was just me. I can do that.
And then they take some more and they take some more and they get in debt, cash flow doesn’t come in like they expect. And they get in debt and the next check doesn’t come in on time. It builds, the debt builds up and things like that. And they feel like they have to take that next job.
And a lot of the contractors, they don’t realize it, but they’re in this perpetual state of survival, just, they have, they’ve got more work than they can do. They’ve got lined up for a couple of months worth at least, but they’re taking it at such a low margin and it’s a perpetual cycle they can’t get out of becuase they feel like, well, I gotta pay the debt. I got to pay the guy. And yes you do, but if you don’t have somebody get you out of that tunnel vision, basically it’s, you can’t see the forest for the trees. And you need somebody to help you get beyond that and say, yes, the bottom rung is sales, but you got to get some profit to be able to get to. So.
[00:14:16] Stephen Brown: almost like you’ve got your finger in the electrical socket and you’re, you’re being shocked to death and you need someone to knock you loose with a two by four.
[00:14:25] Rob Williams: There’s another good example. I’ve got a good friend that had a really large contracting business and he’s trying to build another big business, but he’s always up in the impact and the legacies. And he’s talking about all these things that he had when they were, I don’t know how big they used to be, but let’s say they were 60 to a hundred million dollars. They were a big company. And he’s always talking about the impact and the legacy that he’s going to bring with his new company. And he hadn’t even closed on the land and gotten the development yet and gotten anything.
And he’s just stuck in all these, reading all these books about these higher portions of the pyramid and he hasn’t gotten down to the basics of, get some jobs again. He’s just staying up at the top of the pyramid and it’s great that he’s intellectual on these things, but man, you got to bring it back down to earth again and build that back up. And don’t stick your head in these books and the impact and all the HR stuff that he’s done. He doesn’t have any employees yet. It’s–
[00:15:27] Stephen Brown: Yeah, that stuff’s boring. That stuff’s boring. I don’t blame him. It’s more fun to have lofty goals. But you know, seriously, you are providing, an incredible service to people. You know, the expression, you can’t see the forest through the trees. That is especially true when you’re stressed.
[00:15:44] Rob Williams: Yep.
[00:15:44] Stephen Brown: And you might say I’m not stressed, but you’re stressed if you’re running the business, to some degree. You are. It’s just a fact. And why, why go through a survival mode? If you can help it?
[00:15:56] Rob Williams: Yeah. And I’m guilty of those same things. I had big companies and now, in this business that I have here, I don’t have all those employees and things anymore. And I, it took me some straightening out to do. I need to lecture myself or my coaches that I have, brought me back to the same thing.
I’m, I’m guilty of the same things that that friend was guilty of. So.
[00:16:17] Stephen Brown: Okay, well. You gotta make a plan. You gotta ask for help and you don’t know what you don’t know.
[00:16:24] Wade Carpenter: Yeah, one of the analogies that Mike put in Fix This Next, which I always thought was great: I’m going to paraphrase it. I’ll probably butcher it. Say I’m doing a tax return and I got to print it out and I’m on a deadline. And so I’ll start printing and my printer jams. And then I go in there and I open the thing up, I flip, turned the thing off and on, and I put it back in there and it doesn’t– and I do that several times. I keep doing the exact same thing and it still doesn’t work. And then, we all, I think we’ve all, you would just start slamming the thing closed and probably make it worse. But, take a look at the back of the machine look, and, oh, I found this little piece of paper that was, you know, those kinds of things.
I think we all can relate to that, but sometimes if we continue doing what we’ve always done, we’re going to get what we’ve always gotten. Okay.
[00:17:13] Rob Williams: Yep. That’s right. It’s the definition of insanity. I don’t know if it was an Einstein or somebody, but it’s doing the same thing over and over and expecting a different result.
[00:17:25] Stephen Brown: Yeah.
[00:17:27] Rob Williams: Yeah. Yeah. So, well, that’s great. This is a good, good topic. Any, anything else you wanted to add to that? I think this has been great.
[00:17:34] Wade Carpenter: I think there’s plenty of things we could go on about getting out of that survival trap and, maybe getting some help on that. For contractors, getting your cost records and stopping and looking to see where you are, getting an outside look at where you really are and where you’re falling down, that can make a big impact.
[00:17:55] Rob Williams: Yeah. If you’re interested not to promote my web page, but it’s IronGateESS.com just in case, I think you can go there and get a free assessment on there, but it really, you’re still not getting the third party thing so I don’t really promote that like I used to, just taking the free assessment, but it gives you an idea of what it is.
So you can go on there and get that free download and we’ll put some things and notes in the show notes.
[00:18:23] Stephen Brown: I wanted to remind our listeners, that the reason that we have this podcast is to try to help with true life stories of situations where people stub their toes. And in the financial world of contracting the problems and things that we see all the time that can be corrected.
Some of them are absolute horror stories. Some of them are very simple, but yet again, I’m going to have to say, you don’t know what you don’t know.
[00:18:49] Rob Williams: Yep. That’s right. So today’s topic. You don’t know what you don’t know, and that can get you into the Survival Trap. So, thanks for listening today. We are the Contractor Success Forum and we have Stephen Brown, McDaniel-Whitley bonding and insurance company, Wade Carpenter, Carpenter and Company, CPAs. And Rob Williams at IronGate Entrepreneurial Support Systems.
Come listen to our next show. See y’all later.
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