Should You Get Out of the Contracting Business?
That may seem like a strange resolution for a contractor. However, it might be the best advice you ever receive. How many people do you think wake up in the morning and say to themselves, “I can’t wait to hire a contractor today?” If you do service work, it’s even worse. No one wakes up and say. “I hope something breakdown today, so I can hire a contractor.” Of course, individuals and businesses often must hire a contractor. The problem with that is when people are forced to do something they don’t want to do, they usually want it as cheap as possible.
Now do you understand the problem with the typical contractor’s business plan? They are trying to sell something no one wants, and if they are forced to buy it, they want it cheap. Maybe this explains why the construction industry has one of the lowest returns on investment (ROI) of any industry. For example in the middle of the largest construction on boom in history, Forbes magazine reported the ROI for the construction industry was 9.6 percent compared to 16.7 percent for all industries.
Before you panic I’m not suggesting that you stop building things because that’s what you do, but you are not in that business. You are in the business of providing solutions to prospects with the aim of turning them into long-term clients. The difference is when people wake up with a problem, they want to fix the problem and price is typically not the most important issue.
Professor Philip Kotler of Northwestern University wrote, “It [marketing] is the art of identifying and understanding customer needs and coming up with solutions that satisfy the customers and produce a profit for the stakeholders.” Further, Peter Drucker, the father of business consulting, made an even greater observation. He stated, “Because the purpose of business is to create a customer, the business enterprise has two – and only two – basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.” In other words, the business that contractors must think of themselves in is identifying and understanding customer problems and then using their knowledge to develop an innovative or superior solution to resolve the problem.
Unfortunately, the typical contractor makes a few mistakes that have dire consequences. First, too many contractors attempt to sell construction services, instead of the solutions their services can provide. Keep in mind the customer is not interested in the process of getting to the solution, they are interested in the solution. Even more specific – will the proposed solution do what the client wants? It doesn’t matter how great a job you do building something if it doesn’t solve the customer’s problem you have a problem.
Another group of contractor doesn’t even do marketing; they merely respond to requests for bids. The number one reason projects fail is because of a lack of a clear definition. Unfortunately, too many people believe that plans and specifications define a project. Plans and specification only describe what the contractor must do, they don’t explain what the desired outcome is supposed to be. It’s even worse for the contractor is when you consider everyone is bidding on the same thing. The reason is prospects think the construction services are a commodity and, therefore, tend to select the contractor solely on price. Competing solely on price is the worst way to obtain business, which may explain why 95 percent of contractors go out of business and contractors fail faster from startup to bankruptcy than any other industry.
Another problem is that too many contractors misunderstand what marketing is. They believe it’s about advertising and letting the world know about their business. True, some outbound marketing is needed, but most forms of outbound marketing in the construction industry is very ineffective at best. However, what Drucker was talking about was market research – identifying and understanding the prospects problems. With this information, the contractor can make a proposal that targets the prospects problem with a unique solution.
In essence, it’s about delivering superior value. If you make it a habit of delivering superior value to clients, your outbound marketing will take care of itself in the form of word-of-mouth marketing. In other words, your past client’s will spread the word for you. In fact, word-of-mouth marketing is the most powerful form of marketing, because a third party is stating why the contractor is great, instead of the contractor pounding its chest that leaves everyone skeptical.
Of course, identifying and understanding client’s problems is not easy as it takes hard work, but it’s certainly better than the alternatives, especially if you want to increase your company’s profitability. One method to make the process easier to specialize in the types of work you perform. For example, if you work on hospitals you need to become an expert on how hospitals operate so that you understand the challenges hospitals face with their facilities. This knowledge allows you to develop innovative solutions that set your firm apart from the competition. The advantage is that often if one hospital has a problem, others have the same or a similar problem.
A word of caution though is necessary. Don’t appear to have an off the shelf solution, even if that’s what is needed because customers think their situation is unique. You can emphasize your experience with other hospitals and then say, “However, based on what you describe, we would suggest the following to address your specific problem.” Again, it may be the same solution as down the street, but don’t say that.
An example on how the above approach might work. In an interview with a contractor, he told me the following story. They were working on a new hospital plan, and the contractor noticed that there were 20 nurse’s stations on each floor of the hospital. That number seemed excessive to the contractor based on its experience with other hospitals. So in one of the meetings with the hospital, the contractor asked how many nurse’s stations they needed per floor. The administrator responded, “Our normal practice is 20.” The head nurse burst out with, “But we only use three.” The administrator was surprised and turned to the contractor and asked, “How much does each of those stations cost?” The contractor’s response was around five thousand dollars each. The administrator suddenly realized they had been wasting $85,000 per floor in their hospitals. The contractor’s experience allowed them to ask a simple question that saved the hospital over $500,000. That’s finding a superior solution and helps to get great word-of-mouth marketing.
The next few monthly additions of the Garrison Report will expand on this topic and offer strategies to help contractors to compete on the value of better solutions that address the client’s needs.
Source: Ted Garrison
Ted Garrison; president of Garrison Associates, is a catalyst for change. As a consultant, author and speaker; delivers his Construction 3.0 Strategies that offer breakthrough solutions for the construction industry by focusing on critical issues in leadership, project management, strategic thinking, strategic alliances and marketing. Contact Ted at 800-861-0874 or Ted@TedGarrison.com. Further information can be found at www.TedGarrison.com.
