The Subcontracting Business Life Cycle: 3 Mistakes Young Companies Make

Even though U.S. government data indicates construction businesses are succeeding at higher rates than ever before, there is still plenty of room for improvement.

It’s the first years in business that define a company’s capacity for growth — and survival. Making the right decisions early on helps fortify businesses against choppy economic waters and lean periods.

Making the wrong decisions can likewise guarantee a short life cycle for a subcontracting business. Here are three common mistakes we see in construction businesses every day.

They Underbid on Construction Projects

Every trade contractor has felt the pressure to underbid. In a competitive market, having the lowest price sounds like an obvious tactic for winning work. 

But this tactic has numerous downsides, any of which can be detrimental to a growing business.

For one, if you position your business as the cheap option, then you will always be the cheap option in the eyes of GCs in your market. That immediately creates a ceiling for how quickly and how fully you can grow your business. Better and more lucrative jobs become more and more unattainable when you position yourself this way.

For a young business, it’s more important to focus on winning jobs that match with your capabilities and jobs you can learn from as you grow. “It is okay to be slightly picky with the jobs you bid on,” the team at Surety Place in Scottsdale, Arizona, writes. 

“Bidding on jobs that will increase revenue while also enhancing your portfolio for future projects is key. Contractors can get greedy, which is often their demise. Be the contractor that bids on the right projects that help market your company for future projects.”

That of course has to be balanced against cash flow considerations, but as the team at financial firm Carr Riggs & Ingram writes, taking on underpaid work isn’t the best way to inject cash into your business. Better options include refinancing debt, borrowing money against assets, selling idle or unneeded equipment, and being careful about making cash payments, they note.

They Wait Too Long to Hire Their First Project Manager

Hiring your first full-time project manager is a big step in the life cycle of a trade construction company. 

It’s an important indicator that the business is growing, and you are investing in its future. Up to that point, the business owner and crew tend to manage budgets, costs and timelines themselves, often because that’s the most cost-effective way to run the business. 

But trade contractors who get stuck in that mode of doing business end up mortgaging their own futures. They’re unable to tackle more complex work or really even focus on growing the company at all because they get bogged down in day-to-day activities.

A project manager frees up that work. “Construction projects are complex, with many different moving parts,” recruiter Evan McDowell at Austin Nichols Technical Search writes. “Having someone who can effectively manage all aspects of the project is essential for ensuring that the project is completed on time.”

Ensuring construction projects are completed on time is only part of what a project manager does, however. They also do the following:

• Break down projects into predictable and manageable units of work.
• Manage project timelines and adjust those timelines according to any changes or delays that occur. 
• Define the scope of construction projects within time and budgetary constraints.
• Impose cost controls to ensure money isn’t going out the door.

Finally, JLL senior vice president Kirt Gilliand raises an important point about the role these folks play in project documentation management. “The documentation and communication facet of a project manager’s responsibilities ensure that each party involved in a project clearly understands their role on an ongoing basis,” he writes. 

“It also ensures that the client maintains a full-field view of the project from beginning to end. Importantly, project managers are also responsible for ensuring that all invoicing is done accurately and aligns with the contractual obligations of each party.”

They Neglect Culture

A terminal mistake that businesses in every sector make is to give too little importance to company culture. 

This sometimes happens for the same reason trade contractors are slow to hire a project manager — they’re too busy getting billable work done to think about what kind of company culture they’re building.

But getting lost in the weeds here is a major misstep. Neglecting the development of a company culture can cost you talented team members in the long run. “Companies that invest in building a strong culture that fosters collaboration, professional development, passion, and pride will see higher rates of employee engagement and retention, superior levels of craftsmanship, and a stronger commitment to the team and the mission,” Swinerton Chief Administrative Officer Lauren Nunnally writes.

For young trades businesses still working to define their internal cultures, here are three tips to keep in mind:

Recognize the Pride Your Team Members Take in the Work They Do

The team at Go Construct in the U.K. cites data collected nationally that found more than four in five building trades workers say they are proud of their jobs. 

Never lose sight of this. The pride that people take in their work is what makes them get up before dawn and come to the work site.

Further, everyone enjoys praise from clients and colleagues. Don’t be shy about sharing that praise with your team. “[M]any customers are only too quick to say thank you and ‘job well done,’” Pinnacle Development Group’s Brad Humphrey writes. “Often, such appreciation is sent to the owner or some senior leader, but even this form of appreciation needs to be passed along to the workers.”

Lisa Martensen at Milwaukee Tool says this is standard practice at her company. “[S]imple things, like acknowledging when a consultant is converted from ‘contractor’ status to ‘full-time employment (FTE),’ go a long way in making our team members feel part of our community—and it’s also just the right thing to do,” she writes.

“Kickoff emails, welcoming a new subcontractor or telling a project manager or superintendent ‘hey, great job!’— these small actions do not go unnoticed.”

Always Remain Committed to Worker Safety

Tradespeople know which businesses prioritize people’s safety. 

Even so, just being inexplicit about your commitment to worker safety can send the wrong message. Behavioral scientist Renee Jaine tells Construction Sector Accord that it can appear a tension exists between efficiency and worker health and safety. But sometimes this is because “values aren’t communicated the right way.” 

So, how do you demonstrate that commitment to safety? ConstructConnect’s Kendall Jones emphasizes the importance of daily site inspections and safety meetings. 

Use the inspections “to identify any potential hazards and monitor workers to make sure they are working safely,” and pair that with a safety meeting before work begins to ensure everyone knows what tasks are scheduled, what issues to be aware of, and what safety procedures must be followed.

“Good or bad, your company already has a safety culture, but there’s always room for improvement,” Jones says. “Having a rock-solid safety culture means making the commitment to put safety first.”

Encourage Communication and Collaboration

Finally, make communication a priority so everyone on the team is in the loop and has access to project documentation when they need it.

This means:

• Ensuring your field teams and office teams have the right tools for collaborating. Make these tools easy for both teams to use.
• Have a central system for project documentation. This way, everyone has access to the data they need whenever they need it.
• Provide training on those tools, and customize that training to whichever languages your team members are most comfortable using. Spoken language barriers don’t need to get in the way of collaboration.

Images used under license from Shutterstock.com.