After a quick glance at the high-rise office buildings and road projects, the prevailing wage and bonding requirements, the copious codes, and the penalty clauses common to commercial building, the prospect of applying anything useful from the non-residential sector to a residential remodeling business seems remote.
Take a closer look at this $1 trillion-plus industry, however, and you will find truisms that suit a construction business of any size or specialty. Sure, commercial builders and contractors — especially those working on publicly-funded projects — are often required by contract and circumstances to do things that a residential remodeler would rarely, if ever, have (or think) to do. But from these mandates, the best of your nonres brethren create competitive advantages that any contractor can leverage.
Strip away the contractual and the code requirements, the late-delivery damage clauses, and even the fact that commercial companies operate in a matter-of-fact business-to-business environment instead of an emotionally charged business-to-consumer setting, and you come away with three things that those working in the non-residential realm do better than anyone in the construction industry: strategic planning, professionalism, and communication.
This trio is the foundation for the finely tuned bidding and estimating practices, spot-on scheduling, rigorous risk management, and targeted marketing efforts that keep the best commercial contractors focused, in control of their costs, and reliably profitable. Here's how they do it … and how you can too.
Strategic Planning Ever heard the term “SWOT”? It's an acronym for Strengths, Weaknesses, Opportunities, and Threats; more important, it's a strategic approach to business that successful commercial contractors follow.
“Commercial builders still have the ability to be creative and passionate about their work, but that's balanced with knowing what's best for their business,” says Leslie Shiner, a senior industry advisor for Intuit Construction Business Solutions, an industry-focused software developer and consultancy in Santa Rosa, Calif. “They take a more strategic approach to profitability.”
Whether through periodic brainstorming sessions or simply by having a solid handle on your capabilities and competitive advantages, a strategic focus helps determine which projects are most likely to result in happy customers and healthy margins … and which ones to avoid from the start. “We have a lot of carpenters on the payroll, so we tend to look first at jobs in which we can use that capability,” says Rick Nugent, president of Nugent Builders in Grand Rapids, Mich.
A strategic focus may also dictate whether Nugent actually bids on a project that appears to fit his company's core competencies. “If there are too many bidders or the pre-bid meeting isn't well-run or is vague, we may back off,” Nugent says, to avoid wasting time and energy on a numbers-only bid process or a flaky client.
That kind of confidence is probably foreign to most remodelers who, like many small or self-employed business owners, harbor fears about steady cash flow. But it's second nature for successful commercial builders to pick and choose their projects, despite carrying a frightening amount of overhead from employees, equipment, and insurance coverage. “They have figured out what they're good at and how to specialize in it,” Shiner says. “That breeds confidence to approach the market more pragmatically and know they'll be profitable.”
Specializing or narrowing your market focus also makes the rest of running a successful construction business easier. A history of actual costs across comparable work, for instance, helps streamline estimating chores on future projects; a legacy of managing subcontractors, suppliers, and clients on similar jobs helps ensure adherence to the schedule (and avoid profit slippage) on the next one. “If you develop specific benchmarks based on your company's past performance and industry standards, and regularly compare them to your current job, you can more closely track the project,” says Leslie Mostow, CPA, a principal with The Reznick Group, a national real estate accounting consulting company in Bethesda, Md., and current chairman of the National Association of Home Builders' National Commercial Builders Council.