In past articles and at seminars, I frequently speak about the various stages of business: wonder, blunder, thunder and plunder. I would like to dedicate this article to “plunder,” a serious illness that can cripple, maim and even kill mature businesses. Ten years of booming economic times have created an environment where many businesses suddenly find themselves facing challenges. Ego and denial can prevent business owners from making changes in time to avoid punishing losses. This article is dedicated to recognizing and dealing with the classic symptoms of a “plunder” business.
Owning a business is hard work and challenging. As we age, fighting the day-to-day battles can become tedious and unrewarding. If owners have done their homework and built a brand-name business with good systems and people, they can spend less time in the business and begin to enjoy some of the fruits of their labor. The following are some thoughts and ideas that help measure whether your business is beginning to spit, sputter and plunder.
“I deserve to make this out of the business — I put years into it. My family members and employees also deserve some of the benefits and compensation of an established business.”
There is no right of passage. Royalty and the class system of doing things died out a long time ago. Yes, emotionally I agree that the mature business owner deserves a break and should be able to cut back, but an owner must understand that he or she may compete every day with other owners who are neck deep in their businesses and bring more value to the operation. Not all the contractors who compete with mature businesses are too cheap or do not know what they are doing. Many are simply at a different point in their business cycle. Competition is alive and well in America: It is called the free enterprise system.
Owner compensation comes in two forms: the owner’s salary for what owners contribute as employees, and, the return on investment they deserve for owning the business. In tough economic times, that return on investment may not be as high as it was in good times. The stock market, corporate profits and other areas are off, so you might want to be more realistic about your non-contributing income. In other words, if you could replace what you do with a $40,000 salary but you take $150,000 out of the business, now may be a time to re-evaluate what your income and draw should really be.
Recently, I got a call from an owner who was concerned over profits and how to fund the buyout that his son was trying to make in order to take over the business. I found it odd that the owner lost a ton of money in the stock market yet expected his contracting business to contribute a six-figure salary that was not tied to performance.
Compensation issues for employees can also factor into the plunder stage. It is not uncommon to find businesses where employees have been given raises year after year but their performance has not grown in proportion. This becomes a real problem when attracting good young people to the organization. Plunder businesses tend to have mature staffs that can easily drift into complacency. When times get tough, this can be not only a compensation issue but also a performance issue. If your organization is comfortable, the hunters and killers might be kicking your butt and your ego just drives you into denial. If you have a business doing several million dollars a year in sales and the margins are good, then your issue is overhead and the efficiency of that overhead.
“People today just do not want to work. Our employees are killing us.”
For 15 years, our consulting firm has been preaching the need to change. We have talked about how minorities are becoming more of a factor in the marketplace, how shortages are developing, how people must change their recruiting, training and managing methods. However, the mature business may not change until forced to do so.
It is not uncommon to find a 60-year-old construction manager or superintendent smack dab in the middle of a “plunder” company’s personnel practices. Frequently, the owner has let this person control much of the personnel issues and now that person is having real problems managing Gen X’ers, Hispanics and other segments of today’s work force. To make matters worse, the only way a good lead person or other employee can advance in the organization is to get around someone in their way. If restaurants, hotels, cleaning services and other non-skilled organizations can find people, so can you.
Don’t complain about employees and blame your losses on them. Most “plunder” businesses have mature owners who are rarely on the job interacting with employees. People have to be managed and they want to see the boss. They want goals, production numbers and to be kept in the loop. Failure to do so will create a workforce with terminal field mentality that just assumes the boss is made of money.
One of the key factors that kill mature businesses is lack of leadership. Leadership means you need to be interacting with your people, setting goals and reviewing plans.
“All the cheap contractors are killing us and we can’t get any work.”
Contracting has always been full of cheap guys. Buy a pickup truck and a few tools and you are a contractor. You cannot survive as the low bidder.
Maybe you should look to your own organization. Dynamic owners — who were good sales people, built relationships and closed deals — are the kinds of folks that founded many contracting organizations. Years later, they find themselves rarely talking to customers face to face. To make matters worse, some have replaced themselves with people who might be classified as order takers. Now that the marketplace is heating up and things are more competitive, it may be more than just a case of the other guys being too cheap.
Yes, some people are just too cheap. But another factor is that some of those dynamic competitor owners do know how to sell and are simply kicking your butt. In other words, you are too expensive to be low and your organization is not good enough to sell the higher price.
Look at your closing ratios and relationships. Who needs help and coaching? What relationships have grown cold because no one was working the process? Good times can create a production and order-taking mentality. Faxing quotes and mailing estimates may have worked when there was plenty of work to go around. But during a recession, you need your best players on the field, not behind a desk.
“We don’t need computers and a lot of expensive technical stuff.”
Maybe not, but most of the successful, young, up-and-coming contractors I know have a laptop, have learned to type and know how to use technology as a tool. Many of them even have a palm pilot. If you have not kept up to date, you might find you have too many overhead and administrative costs. The more efficiently you can churn out bids and estimates, the more money you are going to make.
Computers are always an aggravation. Seems like we just put more and more money into software and other technical items. It also seems like it always costs more than you were told. But not investing in technology through the years might create a dinosaur. One of my tests of business owners is to see if they can do e-mail and some of the other basic computer stuff. It is part of the deal, just like technology, and new methods are required to keep the field up to date. Technology can also be an issue in a “plunder” company because the more mature administrative assistants, estimators and other people are not computer literate and do not want to learn.
In summary, now might be a good time to evaluate your business, tune up any weak spots and quit blaming everyone else. Maybe your business’s engine has too many miles on it and you have been unrealistic about what it can and cannot do. Focus on results and the future, not the past.