Out of 100 home improvement contractors in the U.S., 50% will go out of business in their first five years; 30% will basically break even; 15% will squeeze out a small profit or loss, and only 5% will run a high-performing company that consistently delivers 10% or more in net profits.
These are sobering statistics.
As entrepreneurs, contractors are taking a significant risk and the real goal of an entrepreneur should be to build generational wealth. We all remember the adage, “high risk, high return.” It certainly shouldn’t be, “high risk, low return.”
Reactive Leadership vs. Proactive Leadership
It is common to see owners of home improvement companies spending an enormous amount of time putting out fires. The cost of reactive leadership is insufficient proactive leadership. It's quite difficult to manage a business when operating reactively, and the result is often poor financials and metrics.
Putting all of this in place transforms your company and you'll then be managing the business instead of the business managing you.
Contracting companies also often operate without formal written budgets or plans. Most owners say they want to grow, but many do not have a specific written plan for this desired growth. The way to overcome being a firefighter is to set forth a strong leadership plan with well-documented systems and processes in place.
Measure Your Numbers Against Industry Leaders
Contractor owners should be practicing what we at Certified Contractors Network (CCN) call Intentional/Strategic Leadership. It starts with gaining a true and clear understanding of where you really are today. Then, paint a strong and compelling picture of where you want to go and define the opportunity costs and benefits.
It's important to properly educate and stretch your team to become “best in class.” Always measure yourself against the best in the business and be honest about the gaps you identify within your own company. Take time to regularly evaluate your performance and make any necessary adjustments to get yourself back on track.
Use Proven Processes in All Areas of Your Business
The best course of action is to put proven processes in place in every functional area of your business. Sales, sales management, production, marketing, administration, and financial management must all have these systems in place and every member of your team must be adhering to them. We stress this in all of our trainings at CCN. These are table stakes for building a highly successful contracting company.
Practice Data-Driven Decision-Making by Tracking KPIs
It is also critically important that you practice data-driven decision-making.
You should be tracking key metrics in every department in your company and managing your business by the numbers. These numbers are key performance indicators, or KPIs.
My late father used to tell me that the only way to eat an elephant is one bite at a time. The translation is to just make small micro-improvements through each of the eight areas in your business that we at CCN call the "Virtual Cycle of Success". Your business is a cycle that continuously moves through these eight areas repeatedly:
• Branding and Marketing
• Call Center and Lead Processing
• Sales and Sales Management
• Pre-Production and Firewalls
• Production
• Post-Production / TQM (Customer Experience Feedback Loop)
• Financial and KPIs (Reviews and Takeaways)
• Root Cause Analysis and Action Plan
Analyze each of these areas continuously as you move through the cycle with every customer while making micro-gains with each step. Productivity in every area will increase and your results will multiply.
Identify Main Areas to Measure Metrics
You should monitor and record performance metrics in five categories: marketing, sales, production, financial, and culture-customer-community (we call this C3 at CCN). It is critically important to your business for you to know the metrics you should be tracking and measuring in each of these areas. This is so vital to a contracting company’s success, that at CCN we teach an entire two-day course on this subject.
Putting all of this in place transforms your company and you'll then be managing the business instead of the business managing you.
Gary Cohen is Vice President of Certified Contractors Network (CCN). He spent 11 years as a Clinical Professor of Business at the University of Maryland. CCN is a training, coaching, and networking organization in the home improvement industry. For more information on CCN, contact Gary at gcohen@contractors.net or visit www.contractors.net/contractors.
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