When to Enter a New Market

Pat has owned his contracting business for almost twelve years. Over the past two years he began to have some of his current clients ask him about doing work in a few new market areas, one of them almost 50 miles away. While there were contractors in the new market areas, he was fairly confident he could compete against them due to his proven history of doing quality work.

Determining the right market to enter is paramount for the future success of any contractor. Meeting the needs of your customers can include expanding your current services and locations. However, you still need to be “sober” and alert to the risks of entering the new fields. You should not be timid, but be aware of all the challenges that can present and you'll have to address them.

While there are no secrets to determining the best market for you to enter and there is certainly no perfect time table about when to enter a market, there are several guidelines that have assisted “Pat,” and many other contractors.

Guideline #1    Consider Your Resource Potential

Whether starting a brand new company or expanding into a new market, YOU MUST recognize your resource potential. This is two-fold.

First, what are your current resources including manpower, experience/expertise, equipment, tools, etc.

Second, what potential exists for you to borrow the necessary monies to purchase or lease needed equipment, tools, etc. While borrowing comes with a price attached, you should not eliminate the possibility of increasing a line of credit or taking an additional loan for capital investment from your bank.

Guideline #2    Have a Realistic Expectation for Success

Too many anxious or inexperienced contractors expect great results in the first year. In some situations there may be great rewards for taking the risk. However, in most new construction start-up efforts, it is more realistic to expect a three to five year period of time to realize the full potential. Therefore, making the mental commitment to seeing the investment through is important to make. Don’t be short sighted; good things often come to those who can persistently wait!

Guideline #3    Look to Possible “Joint Ventures” or Partnering Relationships

Many contractors have found greater growth through joining up their resources with another contractor who has what they do not. This can include having the needed expertise or already having a presence in a particular market. When you partner with another contractor in any form you will not reap the entire benefits but neither will you have to exhaust only your resources. You should not go into just any relationship with another company as each company has their own way of doing things. However, this can be an option that could benefit both parties involved.

Guideline #4    Review Available Market Info AND Do Your Own Research

A growing number of resources exist that provide market data for communities. This information is often split into categories that can provide valuable information about a growing need in a geographical market area. While this resource should be obtained and studied, the contractor serious about starting their own business or expanding into another market should do some of their own reconnaissance. Visiting with local material plants and industry related vendors, asking them about growth trends, needs or what market segment is not being adequately met should be pursued. In some cases, contractors have conducted their own survey among a specific area, asking potential customers if they would support a new construction service if it were available.

Guideline #5    Does the Potential Market Fit My Vision or Capabilities

If you are a residential concrete contractor with a focus on patios, driveways, and sidewalks then you need to think long and hard about moving into the commercial flatwork business. Not that this transition hasn’t been done by contractors in the past, but many contractors have failed miserably because they really didn’t understand the differences between working with home owners vs. commercial minded decision makers. If you have a clear vision about what you want to pursue then stay the course. Maybe expand into new geographical areas, but stay the course. If you have been a residential contractor but have several workers with an experienced commercial background then maybe you stand a better chance of making the transition.

Guideline #6    Consider What You May Give Up to Start-up or Expand

When trying to determine a market to move into or to begin a new business, consider other contractors who may no longer receive support. For the residential contractor who used to pass on referrals to his commercial contracting friend, the residential contractor who decides to begin a commercial operation will no longer find his other commercial contractors friendly to his decision. Not that this should prevent the residential contractor from expanding his business, they just need to realize that in doing so, they will probably alienate themselves from those whom they may have received referrals and support.

Guideline #7    Have a Business Plan…and Use It!

The number one reason most new businesses fail is lack of capital. The second reason, failure to plan the business steps to success. Have a plan that outlines the direction, the players, the needs, the opportunities, the “threats” to the business, the budget needs/expectations, sales forecasts, etc. You don’t have to be married to what you plan but planning forces you to think through the process of taking an idea and turning it into a profit center. Have a business plan, before you begin the execution, and use it!

Determining the right market to enter is a decision that should be carefully thought through before any action is taken.  While you will seldom feel 100 percent confident or sure in making a start-up or expansion decision, you should feel good that you have explored the needed areas that can give your decision all the chances to be successful. Even then many contractors will tell you that they had a “gut feeling” about making a decision to begin their company or to expand their services.

Use the guidelines presented here to better position your thinking about determining the right market for your business. If you determine the right market and when you are going to launch the new work dig in for the long haul. Don’t bail at the first signs of failure. It isn’t always the smartest owners who become the most successful business-people but those that hung in there the longest. Good luck and stay at it!

Brad is founder and President of Pinnacle Development Group, a consulting firm dedicated to the construction industry.  For more information about Brad’s firm please go to www.pinnacledg.com and don’t forget to check out a weekly advice column for contractors that Brad hosts.  Go to www.thecontractorsbestfriend.com