Most business must grow to survive and thrive. In some cases, stagnation is the beginning of the end.
However, it is vastly more difficult to manage growth in construction than in any other industry. Unlike manufacturing or retailing, the construction business does not grow internally. Contractors cannot "set it and forget it". They can only grow through the external acquisition of new contracts. In other words, contractors must acquire new business just to sustain their businesses and to grow. Managing growth, therefore, is one of the most important skill a contractor can possess.
You have heard me say that every time a contractor starts a new project, he is operating a new company - new client, new size, new location, new designs, and often many new employees. The successful contractor must constantly select projects that will contribute to the healthy growth and sustainability of his organization. This is the art of project selection. "There are no bad projects - just bad matches of contractors to projects. Project selection is one of the most critical decisions construction enterprises make." (The Secrets to Construction Business Success, Thomas C. Schleifer and Mounir El Asmar, Routledge, 2022, pg.150)
Increments
In manufacturing and retailing the increments of growth can be carefully staged by management in accord with their firm's financial and operating capabilities.
- In construction, however, the increments of growth are controlled by the opportunities the marketplace presents. Contractors can only take on the work the marketplace offers.
- "The bigger the better" is a common belief among contractors. When questioned further most contractors add, "to a certain point". All successful contractors possess an "inner auditor" that tells them when the increment of growth is a leap too far. Learn to listen to your internal auditor.
Size
- Managed growth in contracting is the refined art of project selection. "Most organizations have a good number of small projects, a reasonable number of mid-size projects, and a lesser number of large projects." (small, mid-size, and large project is relative to the overall size of the business)
- Small projects - may be performed as a service for regular and valued clients and usually have a high profit margin.
- Mid-sized projects - produce reasonable profits and are the projects that most companies thrive on.
- Large projects - help contractors reach critical mass, support growth appetite, and support the interests of key employees. They are harder to estimate and carry greater risk. (The Secrets… pg. 150-151)
Type
- Experience – (Again) "There are no bad projects - just bad matches of contractors to projects." A construction company's greatest asset is the collective experience of its team members. "Experience is accumulated institutionally but is captured individually. The number of members on a project team with direct and relevant experience improves a project's delivery performance." (The Secrets...pg. 153) The successful road builder should think long and hard before they decide to build a bridge. Measuring the ever-expanding expertise of your crews is the art of taking incremental steps into new territory. Only "fools rush in where angels fear to tread". Matching the next project as closely as possible to the collective expertise of your team is an important skill to develop.
Location
- Familiarity - When pondering a project outside your usual geography you will find yourself unfamiliar with local (1) labor issues and skill levels (2) subcontractor availability, pricing, and expectations, and (3) other local customs that may impact how the work is performed. No doubt you will often move off into unfamiliar territory as your company and your marketplace expand. Recognizing the risk involved is the first step in mitigating the impact. Be cautious and never combine the risks of a new type of work, on a larger project, and in an unfamiliar location. That can be a fatal combination.
Project Selection Tool
In construction, there is no sustained business or growth without constantly initiating new projects. Project selection, therefore, is the contractor's essential management skill. To help contractors apply the art of project selection, I developed a Project Selection Tool. During the testing phase of the program, I asked numerous contractors to run the program on three of their completed projects, including two successful projects and one project they wish they had not taken. Respondents answered 26 questions and got a numerical score that confirmed the tool as a predictor of the potential success of their projects. The questions focused on the five factors that our research found determined the success profile of any new project:
- Size
- Type
- Location
- Complexity of Design
- Experience of the team
The tool can be found on the Simplar web site, www.simplar.org within the business of construction library on the resources tab or on page 157 in my new book and is free for you to use as many times as you see fit.
Managed Growth
In construction, growth should be carefully managed. However, taking any project you can get is not managing growth. Taking only projects you can complete successfully is managing growth. The primary "best-in-class" management skill for 2022 is to manage your growth with risk-averse institutional self-awareness.