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By Duane Craig
April 9, 2018
Scalability is more important than ever because technology is changing the playing field quicker and more completely than any change agent that's come before.
Now, your customers can know more about construction and more about you then they've ever been able to know. Your competitors can deploy new technologies with a few clicks of a mouse that will increase their competitive advantage at your expense. Your employees can find better pay and benefits by spending just half an hour on the web, while employees you'd like to attract can find out all your dirty little secrets through social media and websites that rate employers' respectability.
If you want to take advantage of all the ways technology is changing the world in which you operate then you need to make your business as scalable as you can. Scalability means you can respond to new opportunities quickly and effectively, and just as quickly shed outdated processes and markets that no longer serve you.
In short, scalability is a process that allows you to create value, deliver value and capture value. It's all about profitable growth. Fortunately, researchers writing in the Massachusetts Institute of Technology, Sloan Management Review have studied scalability and can now suggest templates you can use to make your business model scalable.
Expand Your Opportunities
Maybe you started out building in the retail sector doing hard bid jobs. Now, a few years later, that's still where you specialize. You could be missing out on opportunities because you are so narrowly focused.
You have figured out how to offer more and more value in what you deliver. Otherwise, you wouldn't probably still be in business. But, you might not be profiting from the new value you bring to the table. If you use this route to increase your scalability then you might start going after design build or integrated project management jobs. Or, you might start doing crossover work in another sector like residential or hospitality.
Construction companies regularly face capacity constraints, or items that limit the company's forward movement. At the project level, you might have equipment or subcontractor shortfalls while at the company level you might not have the right mix of employee skills, or a needed amount of bonding.
A knee jerk response to these constraints might be to rent equipment, hire additional people or subcontractors, or finish up a project quickly to recapture bonding capacity. But, when you look at the question from a different angle you might come up with other options that will accelerate your return on the investments you make. Suppose your capacity constraint is people with a certain skill. Instead of ramping up a high speed talent search-and-hire program, you might decide to subcontract that portion of the work. Or, you might use a vendor's installation program that relies on the vendor's specialized employees.
Improve Cash Control
Cash flow is the lifeblood of any construction business. And, cash reserves not only improve your bonding capacity but they also cushion you against market cycles. If you speed up receivables by billing more timely while also reducing rework, you boost your cash inflows. When you negotiate with suppliers for 30-day payment terms, you gain control of outflows. While some of this depends on your place in the project pecking order there are always steps you can take to improve your cash control.
Do a quick analysis of how you are buying tools and equipment. Do you have opportunities to extend the time before you have to pay? For example, if you are spot buying tools as needed, you might free up capital and get a discount on cost by awarding your business to one supplier and setting up monthly payments. Or, instead of buying small equipment, you might rent it through an account where you pay monthly.
How you manage capital relative to taxes also fits here. When you decide to expense or capitalize equipment, you use the tax laws to help you with your capital management.
Capitalize On Your Partners
When you give value to your partners, you create incentives for them to recommend you and your services. By highlighting the value your partners bring to projects you boost the overall value you offer.
In other ways, you also stand to reap rewards directly related to how you manage projects. Maybe you're a general contractor who uses a project management platform like Procore's. When you make that platform available to your subcontractors you provide a tool they can use to improve their performance. When their performance goes up, so does yours. You would expect to see more timely filings of required forms, more accurate change order processing, less rework, better schedule performance and improved quality control.
You can also view your customers as partners, so don't overlook opportunities to create incentives for them to recommend you. Cash rewards based on referred contract size, restaurant gift cards and free services can keep your name in front of potential clients.
If you liked this article, here are a few eBooks and a quiz you may enjoy:
3 Major Qualities of a Successful Task-analysis Approach
Construction Software Buyer's Guide
QUIZ: Think You're Cut Out For Running Your Own Construction Business?
Ready, Set, Grow: Four Key Elements For Construction Business Growth
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