Cindy and Joe Roeser had been in business for 15 years and had built a solid reputation in St. Louis. Their average job size was around $100,000, and they'd handled a few $250,000 jobs successfully. Then, a previous client bought a house that he wanted remodeled entirely and called Roeser Construction. Cindy and Joe were eager to do it. They had finally “landed the big one” — an estimated $900,000 job.
For any remodeler, going after that first big job is frightening and exciting. “As an entrepreneur you are seduced by a sense of possibility,” says Paul Winans, owner of Winans construction in Berkeley, Calif., and NARI president-elect. “When it comes walking toward you, you're scared and attracted at the same time. ‘Should we go for it and will we get it and if we do how do we do it?'”
Often, “the big one” is something a past client wants done — someone whose respect you've already earned — but it could just as easily be something you bid on. The definition of “the big one,” of course, is different for every remodeler. The job could be something physically bigger in size, larger in scope, and/or more in dollars than the jobs you've already done.
Whatever represents “the big one” for your business — even if it's different in degree and not in kind — it will take you outside your comfort zone. When you go there, every once in a while, says Winans, “you learn things for when you go back to your bread and butter work. It becomes easy to run what you've done — once you've paid your tuition at the university of hard knocks.” But going outside that zone without preparing could be a disaster.
Murphy's Law Unbound It turned out that “there had been a fire in the attic back in the '30s or '40s, and there was a lot of structural damage from the roof that went into the walls, caused the floors to sag, and went down to the basement,” says Joe Roeser. Somehow the architect had missed this and several other things.
The original contract was a time-and-materials job. “Because the house was so old and had been neglected, we didn't contract it out because we didn't know what we were getting into,” says Cindy Roeser. The original estimate of $900,000 was before the damage was discovered. Still, the damage didn't deter the Roesers, and they got deeper into the project.
Some warning flags should have gone up right away, but the Roesers weren't prepared to see trouble. First, taking a contract that's more than double your current contract —and in this case nearly 10 times more — is a bad idea. Thomas Schleifer, Ph.D., a retired contractor who wrote Construction Contractor's Survival Guide and now teaches at the Del E. Webb School of Construction at Arizona State University, studied hundreds of construction businesses over the years and isolated 10 reasons contractors fail. The one that hurt companies the most was change in project size.
“A company is safer growing in modest increments — 20, 30, even 50% larger has modest risk associated with it,” Schleifer says. “A job twice the size of any other job may drain the company. You're betting the whole company on the one job” because you're draining resources. “Field people are struggling. Management is struggling. It's like doubling your bet at roulette and not taking anything off the table.”
Adding the change in job size to any of Schleifer's other nine reasons for failure —changes in location, type of work, key personnel; managerial maturity; poor accounting systems; failure to evaluate project profitability; lack of equipment cost controls; poor billing procedure; and changes in accounting systems — compound the risk. “When two or more of these business changes are undertaken at the same time they can be lethal,” Schleifer says.
The Roesers' problems escalated. “We didn't have systems in place to handle that kind of project in an organized fashion, and it became a little chaotic,” says Cindy, who admits the company did not write down change orders; everything had been done verbally.
Because the house wasn't structurally sound, steel beams were needed, which meant getting a crane and increasing costs. The owners apparently had little communication between the two of them. In the field, employees would do what the husband asked and then do what the wife asked. “We didn't establish who made the final decision,” Cindy says. “The other issue,” she says, was that “the client kind of ran the project. The subs started working for the owners and not for us.”
The Roesers were running three projects simultaneously, but because the mega project took so much of their time, they weren't watching the other two. Nor were they keeping up with marketing for new work. “We made every mistake in the book,” Cindy says.