Eye of the Survivor – Part 1

The economy — two words that used to be said with confidence. Now, they express concern and uncertainty. While the factors that contributed to this recession have been identified, finding a solution to the problem has been a little harder. The question contractors are asking themselves right now is: What do I do to make sure my business survives?

“I’m not looking at a down economy; I’m looking at a way to grow my business,” says Roger Powell, an owner and partner of Backyards Only, a landscape company in Colorado Springs, Colo. Powell and his partner, Jon Herman, increased their business 25 percent over last year even though the main market for their company, new home construction, was low. Powell says some homebuilders in his area didn’t even pull a permit last season. How did Powell manage what seems like the impossible?

This story is the first part in a series addressing the challenges contractors are facing in this economic environment and how they are overcoming those challenges. In December 2008, as the effects of this recession were starting to impact all sectors of the economy, business owners who use compact equipment (specifically Bobcat machinery) were interviewed and asked to share their insights into the previous year and their plans to keep their businesses viable in 2009. The two corresponding parts to this print article can be read online at www.ceunbound.com — and involve insightful contractor focused articles that discuss company best practices, business and diversity and the keys to marketing more success.

Competition

The challenges facing contractors today are many, but experienced and smart businesses are responding to keep their options viable. As many professionals know a frozen money market means borrowing money for a construction project is difficult. When the number of projects in a market decreases, the contractors in that area have less work and competition increases. There are two problems that increased competition creates for contractors. First, contractors begin to bid on work that they haven’t normally performed in the past. Often, the work that inexperienced contractors do is inferior to that of contractors established in the markets they serve. Second, in the capitalist system, competition leads to a decrease in price. Contractors experience this firsthand through competing bids that are at or below cost.

With substantially fewer homebuilders pulling permits in Colorado Springs, Powell says he’s faced competition from construction workers trying to make ends meet. “I’m going up against guys who were hanging drywall last year, but since they don’t have any other work, they’re trying out landscaping and are underbidding us,” he says.

Another contractor, Keith Kamish, is experiencing competition similar to Powell. Kamish, the vice president of K.A. Kamish Excavation Inc. in St. Paul, Minn., says the downturn in new home construction led many residential excavation contractors to look for work in his market, commercial excavation. Despite the increased competition, Kamish says that 2008 was still one of the best years his company has had.

Kamish credits his knowledge of his market as a contributor to his continued success. The requirements of engineers and general contractors on commercial projects are different than residential construction. Knowing the expectations of general contractors and engineers gives Kamish an advantage over the new competition. “I’m used to compacting fill material in 1-ft lifts, while some residential contractors don’t take compaction requirements into consideration. Knowing those differences are things that contractors new to this type of work have to learn, when I already know,” says Kamish.

Avoiding Low Bids

A reputation for knowing the requirements of a job and establishing your company in a market can take a contractor only so far in tough economic times. The most challenging aspect of increased competition for established contractors are bids from new companies that come in unusually low. When work dries up in one sector, contractors may become so desperate for work that they bid low on projects in other sectors just to get in the door.

How are contractors like Kamish overcoming increased competition and low bids? Kamish says that it’s difficult to turn down work, but that contractors need to take a longer view of their business than one job or a group of jobs that are lost to low-bidding competitors. Trying to match bids that are obviously low is a dangerous practice. Kamish says that he knows how much a job is worth, and if that job is done under its value someone is going to lose money. “I would rather go out of business having no work than doing a lot of work that’s going to cost me money,” Kamish says.

While it might be hard to do in the short term, Kamish says turning down work can help a contractor in the long term. “If the competing bid is too low, I want the general contractors I work for to use the other contractor because I don’t want him here next year. I know that contractor is going to go out of business. I’ll weather the storm,” he says.

Networking Through Employees and Customers

Since avoiding low bids is impossible and doing work and losing money at the same time isn’t a good option, Kamish and Powell have had to try other tactics to stay afloat. While these two contractors work in different markets, they have both used networking as a way to keep their crews working.

In economic conditions like this, many contractors find that they have to do more work themselves. This was the case with Kamish, who was estimating and bidding on his jobs and then working on them because he had let a foreman go who was not providing good customer service. Doing all this work not only took a toll on Kamish, it started to negatively affect his family. “It about killed me,” he says.

Kamish hired a new foreman and an estimator to help with job bidding and says it was a good decision. In addition to the contacts Kamish had already established, the new hires had contacts of their own, and the larger network of contacts has led to additional business.

Powell also networks to keep his business going, but instead of relying on his employees’ contacts, he seeks referrals from his customers. Powell recently consulted with an advertising agency. As he saw the downturn in the housing market, Powell knew he needed new strategies to reach customers. The agency did not recommend that Powell advertise over the radio and in the newspaper; instead, he was given a marketing plan with unique ways to prospect for new business. One of the strategies offered was to contact previous customers who were happy with Backyards Only work and ask for referrals.

“I want to continue to target brand-new construction, but in this economy you have to grow your business however you can. We’ve started to do work at existing homes, and those have all come from referrals,” says Powell.

Contractors naturally feel that increased competition threatens their business. Trying to match low bids in order to continue working is a risky practice. Experienced contractors need to consider the true cost of any job and the quality of the competition when submitting bids. Building a good reputation and a firm financial footing makes it easier for a contractor to lose a few low bids. A little patience can go a long way as other contractors who bid low or perform substandard work lose money or go out of business. Using new ways of connecting with customers, such as networking through employees or customers, is key to surviving super-competitive markets.

Eric Morse is a public relations specialist with Two Rivers Marketing, based in Des Moines, Iowa.

Three Secrets to Success

Professional Essentials to Keep Company and Crews Prospering and Profitable

Top of mind for every contractor at the moment is the economy. The greatest concern is making sure that your business survives. While each day seems to bring more bad news, the fact is that many parts of the country have been experiencing an economic slowdown for a while. It’s not impossible for a business to make it through an economic climate like this. In fact, in 2008, some contractors grew their business or had one of the best years they’ve had in some time. What’s the secret to their success? The way they operate their business.

Communicate: Be Kind, Be Professional

Chad Mittleider and his nephew, Jessie Ottersteter, started Mitts Tractor Works LLC eight years ago and prepare jobsites in the Montesano, Wash., area for construction. The company has never had a down year. The reason? “Our reputation in the area where we work is that if the customer is not happy, we’re going to fix it,” says Mittleider.

In this economy, the customer has all the power because it’s a buyer’s market. Less work put out for bid means more contractors are looking for jobs. Customers will be tempted by low bids, but they don’t have to go with the lowest bid if they see the value of going with a business that provides other types of customer service. Especially now, contractors have to sell themselves and their businesses’ capabilities to potential customers.

They’re Watching You

Providing good customer service is essential because potential customers have sophisticated ways of checking out contractors. The Web site Angie’s List is a forum for homeowners to post comments about services they receive from contractors. The site does not permit contractors to pay to be listed. A contractor is only added when a homeowner submits a review.

Byron Andreas, a second-generation concrete contractor who runs Robert R. Andreas and Sons General Contractor in Cicero, Ill., says that the Web site is popular.

While potential customers can check up on contractors online, municipal building departments are also looking at the work contractors perform. Every job that Andreas’ company works on is inspected by the building department. “Our jobs are inspected before we pour the concrete. The building departments in each of the suburbs make sure we have the right gravel down and the rebar is placed correctly,” says Andreas. Other top ways that customers find out about Andreas’ business is through the phone book and referrals of previous clients.

Anticipate Customer Needs

Roger Powell, a co-owner of Backyards Only, a residential landscape company in Colorado Springs, Colo., says another way contractors can provide superior customer service is by doing homework to fully anticipate their customers’ needs. The subdivisions in the Colorado Springs area that Powell works in have homeowners’ associations that have design review committees that control the type of landscaping each home in the neighborhood is permitted to have.

Many new homeowners are unaware of these regulations when they buy their homes. Powell has familiarized himself with the rules for each neighborhood. This helps him approach customers with a design he knows will be approved. “This has given me an advantage over many other landscapers,” Powell says. Contracting is a customer-oriented business. Communicating with a customer before, during and after a project is important for selling your business and abilities, setting and meeting the expectations for the job and gaining new business through referrals.