Nutdanai Apikhomboonwaroot's portfolio: http://www.freedigitalphotos.net/images/view_photog.php?photogid=1786
Photo credit: Nutdanai Apikhomboonwaroot / FreeDigitalPhotos.net
Being forced to grow your business. Wrap your brain around that for a second.
Wouldn't that be an interesting predicament to find yourself in? How would you respond?
Would you scream "YES", sign the contracts and figure things like staffing and cash flow will work themselves out fine when the time comes?
Would you say "Thanks, but no thanks. I don't want to run that big of an operation."?
Today, we are going to explore the ramifications of each of those two paths. We are also going to explain how you should prepare your business for the time when growth is forced on you. If you implement the systems and solutions we share with you in our newsletters, in our private library at www.USCTCA.com, and through our coaching services you WILL have growth forced upon you.
An Example of Forced Growth
An excellent example of a forced growth business resides about a mile from my house. Back in the late 80's, Walmart had a well-earned reputation for hopping from firm to firm for its MEP design services until Henderson Engineering landed the account. At the time, Henderson was quite small, probably no more than 30 employees. Thirty years later, Henderson continues to keep Walmart happy and employs well over 400. The Walmart
account fueled (forced) a tremendous growth in Henderson's business.
Two important lessons should be learned from Henderson's success:
- Don't take your key customer for granted. Keep your best people on the account.
- Aggressively pursue other business to protect yourself against the sudden loss of the primary account.
It took Henderson a while to build the staff and perfect the systems to handle Walmart's volume of projects cost effectively and without error. Once Henderson's owners had ensured they could keep Walmart happy they immediately set a goal of keeping
Walmart's business limited to 25 percent of its sales. They couldn't turn down Walmart projects so their goal meant developing other clients that would represent three times the Walmart volume. That is a classic example of forced growth. In order to keep its foundational client happy, Henderson was forced to grow massively. The owners really didn't have a choice.
At some point in time, most construction companies experience a burst in sales. Few are ready for it. Few know how to keep the sales coming in after the burst. Few know how to hire well. Eventually quality slips; and as quality of work and customer service was the reason for the growth opportunity in the first place, sales dry up and the business is left in a financial bind trying to pay for new equipment and a new office.
Growth can and should be managed. Most business owners struggle with the challenge of generating opportunities for growth. What few admit to is how they stumbled when growth suddenly dropped in their laps.
Unprepared For Growth
Here's what happens when an unprepared business experiences growth.
The business struggles with cash flow. Money flies out the door for labor and materials yet trickles in slowly from clients. The P&L looks great but the bank account is starved. Vendors get upset and lenders prove uncooperative and unsympathetic.
The crews wear out from the long hours. The office struggles to keep up with the paperwork and stay ahead of the crews with materials, equipment and direction. Overtime shoots through the roof and/or the new hires work considerably slower than the old-timers. Job costs escalate rapidly as all of the above drives up the time needed to complete each project. Deadlines are missed and quality slips.
Hopefully you now realize that the correct answer to the first path - signing the contracts and worrying about cash and staffing later - is to punt. If you aren't 100 percent sure you can staff the projects and meet the deadlines with minimal slip in quality and productivity - and that you have the cash reserves to fund the growth without extending your payables aging - then decline the opportunity. Failure to perform will cause far greater headaches than a temporary rejection of an opportunity.
If you have prepared properly, growth is something that is easy to manage. If your business is running properly, you will embrace growth as you have sound financial management practices in place and the cash cushion to sail through periods of cash
flow instability. Your business will know who to hire and how to ensure they succeed. You will have the tracking systems in place to detect issues before they turn into impactful problems. You will know how to adapt to an unexpected short term dip in your sales.
Reject or Accept Growth Opportunities
Now that we've addressed whether you are prepared to grow, let's address the long-term impact of rejecting good growth opportunities. This goes to the heart of the forced growth
When you reject work from your good clients you are holding open their door for your competition. You are personally introducing the very people you pray don't ever meet and do business. Every possible outcome works against you.
If your competition proves to be capable, you're going to end up in an ongoing pricing war from here on out. If your completion proves to be better, you lose the account. If your competition proves to be incapable, your client will be angry at you for being forced to use someone who couldn't perform. You are in a no-win situation when you reject work from your high margin clients.
That isn't to say you must accept growth. Sometimes the financial risk of running a large business is something that just doesn't sit well with owners. They start losing sleep. They focus all of their time and energy on the business at the expense of their family and their own personal health. If you aren't going to be comfortable owning a large business then turn down the growth opportunities. Without a doubt most of the happy, financially sound contractors I've known are small. Of course, if they were to cease being able to work due to a health problem they would most assuredly be financially ruined within a couple of years. It would only take one significant business mistake to wipe out their many years of success. You see, there is risk with every path.
Why is Forced Growth Worth Talking About?
Turning down high margin clients is really not a good practice to follow. Accepting their work and failing to perform is an even worse practice to follow!
Forced growth is something that will knock on your door once you get your sales and operations systems humming. That's right. Once you fix your sales problem you are going to be forced to prepare every aspect of your business for growth.