Business consultant and Roofing Contractor columnist Monroe Porter led off the 2011 Best of Success Conference with a spirited session titled “Stop Deflating and Inflating Your Business.” Porter, who founded PROOF Management Consultants in 1972, drew on his more than three decades of experience helping contractors to explore the current economic climate and offer advice on how to survive and thrive in a rapidly changing world.
“Change is today’s reality,” said Porter, who pointed to ever-evolving electronic communication, faster schedules and information overload as just a few examples of revolutionary changes. “Uncertainty is everywhere. Norms are no longer the norms. The question is, how does your company culture fit into all of this?”
Porter detailed the four stages contracting companies can go through, labeling them Wonder, Blunder, Thunder, and Plunder. Wonder contractors are those who start their own companies and don’t even know what they’re missing. Blunder contractors might be larger or more established, but they don’t know their costs and are likely to go bankrupt. Thunder contractors — highly profitable, well-run businesses at the top of their game — might be about 5 percent of the market, according to Porter. But they have to continually adapt to avoid the Plunder stage, in which stagnant ownership and enabled employees can run the business into the ground.
Knowing your costs is crucial to business success, Porter asserted. “The number one reason contractors go broke is that they don’t know their overhead costs,” he said. “Many contractors just guess at overhead. Each and every company must budget and determine their own costs.”
Porter walked attendees through financial examples to show the impact of large material price increases on the bottom line. “Marking up escalating material prices arbitrarily increases sales commissions with no change in sales performance,” he said. “It cushions jobs and hides inefficiencies.’”
Faced with a lackluster economy and tough competition, contractors may find it tempting to cut prices, but that is a fatal mistake, according to Porter. “Price cutting — it can’t mathematically work,” he said. “It’s suicide. It’s just math. Don’t let math destroy your life.”
Solid leadership is essential in tough times, noted Porter. He urged business owners to be realistic, avoid panic, know their numbers and hold employees accountable. “The message is change,” he said. “Make sure you change. Change your numbers. Change how they are computed. Adopt new technology. If you don’t raise prices or establish proper margins, no one else will.”