For years speakers at National Pavement Expo have been encouraging contractors to collect data, including tracking job costs down to a very detailed level. It can be tough work, the speakers explain, but the value in so many ways is worthwhile.
Well this week a newsletter published by The Contractor's Business Coach site (run by NPE speaker Guy Gruenberg, Grow Consulting, and Ron Roberts) goes into some detail making clear the value of data collecting. Using Moneyball -- the baseball book (and then movie) about how the Oakland A's completely overhauled the approach teams use to evaluate and sign players -- as a point of comparison, Roberts does a great job of highlighting the value of data to contractors.
The entire text of that issue of the newsletter is below, and if it appeals to you you can sign up to receive the newsletter for free.
Contractors Who Shoot Themselves in the Foot
by Ron Roberts
The book Moneyball introduced America to how the Oakland
A's were using statistics to figure out which player
skills were being under-valued by other teams. By knowing
which players baseball teams were likely to over-pay for
and which ones they were likely to over-look gave the A's
a competitive advantage among small market teams and
allowed the A's to complete against teams with payrolls
three to five times higher.
Something I discovered by accident after reading the book
was that the central discovery the A's stat geeks found
had been discovered decades earlier by the greatest general
manager in MLB history, Branch Rickey.
Always looking for an edge, Rickey hired a statistician
to dig into baseball data to see whether he could uncover
a different indicator of run scoring than the two everyone
else focused on: batting average and runs batted in.
Rickey's statistician determined that on-base percentage
was the single most important skill a hitter could possess.
Amazingly enough, upon Rickey's departure from the game that
fact slid into the background once again and it took decades
before another group of curious researchers tripped across
the same discovery.
The Moneyball concept turned out to be quite old yet still
very effective.
I see this happen in construction time and time again. A
contractor discovers a strategic opportunity and builds a
highly successful business. The pack tries to mimic the
approach but never fully succeeds as it never understands
what makes the strategy work. Often the original contractors
own management team doesn't completely believe in the strategy...
or they simply get bored with it and reject it after the founder
retires.
The central point of Moneyball was that through deep analysis
you can uncover opportunities for success that your competition
is overlooking. What brought this topic to mind was a phone call
I received from a rather unique contractor.
This man had a service business. The service was seasonal.
Volume was unpredictable. It is a service that is known for
intense price competition. Despite all that he was running a
very successful business. His business success was so surprising
that despite intense curiosity I didn't inquire how he was pulling
this miracle.
This man had pulled off a Moneyball action. He had discovered a
strategic opportunity that dozens and dozens of contractors in
his market had overlooked. His success proves that virtually any
trade or service contractor can find an overlooked profitable
market if they research hard enough and go against the grain.
Moneyball is about diving into data to find trends and
opportunities that are being overlooked by the competition.
Construction is a great application for this approach as very
few contractors collect enough of the right data to do the
analysis. That creates an opportunity. A client and I who have
been working on data collection and analysis recently discovered
a couple of trends that he is going to be able to take extreme
advantage of. The trends apply to certain types and sizes of
projects that their company has a strong cost advantage in and
to which the competition is grossly over-pricing. The flip side
of the data was that all the contractors were consistently under
-estimating the costs of many job sizes and types. They had all
learned their pricing from past bid results and don't know their
costs sufficiently to realize their prices are out of whack.
This data dive was Moneyball in action.
To implement the Moneyball approach you're going to need thorough
pricing data, costing data, and a well developed understanding of
the drivers of your overhead. You can't mine data you don't have.
Another lesson from Moneyball is that the market opportunities
change from time to time as new competitors enter the market and
established competitors leave. Moneyball isn't a one-time solution.
The analysis needs to be performed annually or semi-annually
analysis.
For example, when the Oakland A's first started their statistical
deep dive they discovered on-base percentage was virtually over-
looked by the rest of baseball. Eventually the other teams noticed
the A's were winning with players that had been pretty much ignored
and the teams realized that the only thing those players had in
common was high on-base percentages. That drove up the price of
players with great on-base percentages. Eventually the data revealed
that all-glove no hit players were being under-valued so the A's
went in that direction. Once again they fooled the experts and
started winning big time for a while despite a microscopic payroll.
The flip side of this example is my Kansas City Royals, the least
data driven most old school team in MLB. They also have one of the
worst records over the last 20 years. Yet they continue to stick
their fingers in the ears and deny that the statistical approach
is effective.
Data is important. Data will show you what jobs you should be
chasing and which you should be ignoring. It's not as simple as
monitoring how many contractors are pursuing a project. Contractors
tend to be like lemmings willing to follow each other over the cliff.
Don't be a lemming. Be different. Collect and analyze the data.
Figure out where the market dislocations are and take advantage of
them - all the way to the bank!
In closing we try and follow three sets of rules, our wives', the
Ten Commandments, and "The 10 Biggest Mistakes Contractors
Make". Let us help you master your business. Help is just a
phone call away!
Wishing you great success in 2013.
Guy and Ron
P.S. Want your business to grow fast? Check it out here.
P.P.S. Questions or comments? You can reach
Guy at 773-870-6500 or Ron at 913-961-1790.
