(This is an edited transcript of the Construction Genius podcast episode: Sustain Success: How to Build a Unique Strategic Plan)
Southwest Airlines is the world’s largest low-cost carrier and is consistently rated in the top 10 of airlines worldwide by sites like TripAdvisor. On one level, they are like any other airline. They transport people from one point to another.
What sets them apart from others, though, is how they do it.
Unlike many major airlines, Southwest does not use hubs. Rather, they have a point to point transportation system. The airline’s fleet is also configured with just an economy class cabin.
In contrast to many low-cost carriers, Southwest also doesn’t charge a fee for up to two checked bags. I particularly like that because I usually have my backpack with my laptop and a small case where I stuff all my clothes in.
They provide free non-alcoholic drinks, pretzels, peanuts, among other things onboard Alcoholic beverages, on the other hand, are available for purchase.
Their success is not an accident. It’s a result of the development and refinement over the years of thoughtful planning that drives their business success.
If you want to enjoy sustained success in your construction business, you must give considerable thought to building, adapting and refining your company’s plan, just like Southwest.
I’ll walk you through how to do that in this article. This is the third part of a four-part series on the triangle, a one-page planning process designed to be a compass guiding your company towards sustained success. That’s hard to say, right? Sustained success.
The first and second part were about purpose and your personality. Today, it’s going to be all about your plan. Part four will be about your priority and is coming up really soon.
What is a Plan?
So, what is a plan? It is a scheme or method of acting or proceeding that is developed in advance. Again, sustained success is not accidental. All planning has at its core is a question:
How are we going to be successful?
It’s a very simple question that you have to keep at the forefront of your mind whenever you’re doing any kind of planning.
And the answer to that question is found by answering three critical sub-questions:
- What is our niche?
(The keyword that you want to keep in mind for that is clarity).
- How do we serve our niche or our customers?
(The keyword that you want to remember for that question is uniqueness).
- Finally, how do we grow?
(The keyword for that is discipline).
Thus, your plan should be about clarity, uniqueness, and discipline.
Here are the other key points that I’d like to make, and I want you to keep them in mind as we go through the article and as you consider any kind of planning that you’re doing:
- It is more important to say no than to say yes.
- It’s more important to identify what you should not be doing than to grasp every single opportunity.
- Try and be successful.
By way of introduction, I’d like to ask the question, how do you define success in construction? Let me give you one definition:
Success is when you are consistently building the right projects for the right clients.
Ideally, these are repeat clients in the right locations and you’re doing these projects safely with high quality and schedule adherence. This will result in profitability. Any planning should be geared towards that goal.
What Is Our Niche?
Anyway, let’s move on to the first subquestion. Your niche is simply something that your company is best fitted for.
Again, the keyword here is clarity.
When I began to talk about what your niche is, did it pop into your mind right away? Is it clear or is it kind of fuzzy? For general contractors, the average net profit in the United States is three percent. Hence, in order to generate a thousand dollars in profit, you have to generate $33,000 in revenue.
It takes approximately four to five profitable jobs to break even from one bad job.
Think about the last time you lost money on a project. Perhaps that’s happening right now. Why did you lose money? It was probably for a combination of these three reasons: the project type, the project location, or the client.
Think about the client who brought you that project but was unprepared for it. It was poorly conceived. The plans that they brought you were simply not well developed. It cost you delays, changes, mobilizing your guys then demobilizing them. It was really, really frustrating.
Think about the project types that you’ve entered into particularly those where you’ve lost money. Those times when you thought that you would be able to build it well, but perhaps you lost a key guy or a key crew. Then you struggled with your efficiency or your quality as a result.
Think about the location. You saw a project perhaps outside of your normal geographic location and you thought that you could build it well. Perhaps you wanted to make a splash in a new area. So you went there and figured, “I’ll pick up a crew here or there.” You thought a particular superintendent would be able to bring some of his guys on board to help you out in that location, but it just didn’t work.
You must take time to analyze your projects both good and bad. Ask yourself which projects build most efficiently and profitably? What’s the best location for us to build in? Who are the best clients for us to build for? If you’re planning to go to six states and sustain long term success, you definitely have to nail your niche.
Let me give you an example.
A Real-Life Example: The Mom and Pop Engineering Company
I did this process with a general engineering company. You might characterize them as sort of a mom and pop engineering company, but I’ll tell you one thing: they know their niche as far as location is concerned.
They want to do projects 90 minutes from where they’re located because they don’t want their guys to be on the road all the time. They also have a core group of people that they want to work with again and again and again.
They’ve nailed their clients. They want to work with public works and utility districts, so they’re constantly hard bidding work. They’re very good at it. They’re not in negotiated environments and as far as job sizes are concerned, they’re looking into building projects of up to eight million dollars to provide underground paving and concrete.
Did you notice what they’ve said yes to and no to in defining their niche?
That’s the wonderful thing about business. Your niche can be whatever you want it to be. You can do whatever you want with your business.
The problem with many construction companies, though, is that they are unclear on their niche. And because they are unclear on it, they find it difficult to be consistently successful.
If you’re clear on your niche, you can filter all of your decisions through those questions. Location. Job. Client. This should be front and center of your one-page plan.
To go even deeper, begin to set yourself apart from your competition. Ask in terms of the clients that you’re working with and the projects that you’re building. How do you solve problems and add value?
This leads us to the second question.
How Do We Serve Our Niche?
Again, the keyword here is uniqueness. What we’re talking about here is how we can drive up revenue and drive down costs while solving problems and adding value for our clients.
This is how you’re going to drive profitability and success for a long period of time. You must give forethought to this. You can’t just be showing up and winging it. You have to sit down with your executive group and do some thinking.
What’s really interesting is this word: uniqueness. If you’ve read the previous articles, you might remember that we’ve talked about how purpose and personality can make you unique.
Now, as I’ve been reflecting upon this idea of plan and how can one do his business, I’ve realized that it is another opportunity to really set yourself apart from the competition.
Back to Southwest, what they do is fundamentally no different from every other airline in terms of transporting people from one location to another, but it’s how they do it and the choices that they’ve made in terms of how they serve their customers that set them apart.
For instance, one of the choices they’ve made is limited passenger service. Thus, they don’t offer meals, they don’t have seat assignments, and they don’t use travel agents. They also don’t connect with other airlines nor do they do baggage transfers.
Another thing I love about Southwest is how you can get a $49 dollar flight. This is driven by having a standardized fleet of aircraft, focusing on utilizing their airplanes as much as possible, and having lean, highly productive ground and gate crews combined with frequent, reliable departures.
It’s not what they do. It’s how they do it.
That sets them apart and makes them successful. They’re not just showing up and figuring out how they’re going to fly planes every single day. They’re thinking it through in advance, executing it, and refining it.
That’s what you need to do with your construction business as well. Everything that you want to do in your business should be focused on driving up revenue and driving down costs.
Driving Up Revenue
What are some of the ways that you can drive up revenue in your business? What are some of the areas that you should be thinking and planning about in order to be successful?
For one, it can be value engineering. Value engineering is a systematic and organized approach to provide what your clients want in a project at the lowest cost possible. You bid it at one dollar amount and then simply value engineer (engineering?) it to a lower dollar amount.
You will make more money as a result.
Value engineering promotes the substitution of materials and methods with less expensive alternatives without sacrificing functionality.
So how good are you at value engineering? Would it be appropriate for your company to focus some time on planning how you can improve your value engineering and emphasizing that with the purpose of driving up revenue?
What are some other ways that you might be able to drive up revenue?
Here’s another: bid accuracy. The more accurate you are on your bids, the more money you can make.
Think about customer service. Particularly in these challenging economic times, customer service is a massive way to drive up your revenue.
Do people have a smile on their face when they think about engaging your company in a project? Do they want to work with you? Are you getting as close to your customers as possible? Are you able to figure out the problems they have and the value that you can add, then put together a plan to make sure that you’re executing on customer service?
What about change order management? That’s another way that you can drive up revenue. It is only fundamental that if you’re doing work, you should be getting paid for that work.
The very best companies have integrated processes and procedures by which they manage their change orders so they can capture every dollar that they’ve legitimately earned.
These all require regular planning sessions on your part. One planning session may be dedicated to what your niche is. If you’ve already nailed that, then think about how you can serve your niche drive up revenue while also driving down costs.
Driving Down Costs
Speaking of driving down costs, what are some practical ways that you can do that? For one, rework will kill your profitability. So perhaps part of your plan going forward should be on how to train your people in the field more effectively so that rework is reduced.
Other factors are safety, the way you utilize equipment, the way you manage your subs and your materials, and how you manage cash flow.
Think about it. Are you under building or overbuilding at the moment with most of your projects? Do you really know what helps to generate cash in your business?
If it’s definitely not underbidding, then maybe you need to put together a plan to discipline the cash flow in your business as much as possible by focusing on an issue like overbilling?
My point is that once they’ve identified their niche, the best companies get close to their customers immediately and figure out how uniquely they can service them.
This is certainly a difficult process. It isn’t something that just happens by a snap of a finger. Everything you do should be tightly integrated together. And the more tightly integrated they are, the more difficult it will be to compete with you, setting yourself apart from any average joe of a contractor.
How Are We Going to Grow?
So we’ve talked about the planning process in terms of what our niches are and how we can best serve them, so let’s move on to the third part. It’s where we want to take a look at the planning process by focusing on how we are going to grow.
It’s a great question.
Growth is so essential. I tell you, you’re just either growing or you’re stagnating.
The keyword here is discipline. I was on the phone yesterday with a contractor, and over the past three years, they’ve doubled their size and doubled it again.
Has something like that ever happened to your business? Doubling your business and then doubling it again over a two year period can destroy it, right?
We also know that most construction companies don’t go out of business because of a lack of work. They struggle many times because of too much work.
Thus, when you’re planning about how you’re going to grow, it is an absolute must to maintain a commitment to discipline.
Two Types of Growth
Keep in mind that there’s also internal and external growth.
One of the things that you have to be doing in your planning process is to look at the people in your organization.
You always want to hire slow and fire fast. Unfortunately, for most construction companies, it’s the other way round.
You also want to focus on developing and training the folks in your organization from a technical point of view so that they will be able to build in an efficient, safe, and profitable manner.
You also have to develop leaders. You need to understand that people quit their boss and not their company most of the time.
From an internal growth point of view, how can you refine the processes that you have in order to be more profitable and more successful? All of these things require planning and they require discipline.
As for external growth, it is the place where ill-discipline is often demonstrated in construction companies.
Let’s rewind back a bit to how you can define your niche. The three elements are client, project, and location. These are three concentric circles that you can put a dollar sign in the middle. The closer you are to nailing those three things, the more money you are going to make.
Hence, if you’re planning to grow externally, my advice is to have at least two of those three circles nailed.
For instance, let’s say you have a great relationship with a client and that client comes to you with a project opportunity in a new location; and that project opportunity is in your sweet spot. Since two elements are already in place, the project and the client, then you perhaps can be a little more comfortable stretching your geographic boundaries knowing that at least you’ve got the project and the client base covered.
Think in terms of nailing two of those three circles.
Performing Market Analysis
As you’re thinking about growth, you really need to do an analysis of the markets that you’re going into as well. Think about a new market or a new set of projects that you’re getting into.
Let’s say you’re looking at new project types. Think about the primary customer for those project types. Do you already have clients whom you could build those new types of projects for?
What is the growth potential for that project type? Is it low, medium, or high? What is the profit potential? What is the market share potential? What is your strength versus your competition? What is the life cycle of that particular project or market type? Is it emerging? Is it mature?
Who is your ideal customer in that particular segment? What is the fit with your sweet spot? What are your weaknesses versus your competition?
These are all questions that you have to ask in the planning process as you’re thinking about disciplined growth. You always have to be analyzing your competition.
You’re in construction, so therefore you have competition. That’s a given. But, as you’re integrating the way that you do business and making yourself unique, you can also be setting yourself apart from the competition. The competition will always be there, so think about them in a new market that you’re thinking about getting into.
What are their strengths? What are their weaknesses? What is their niche? What is their main threat to you? What are some potential initiatives to beat them? These are all questions you should be asking when you’re going through the planning process.
Again, planning is all about how we are going to be successful, and thus, an organization’s plan should change whenever it’s competitive.
Landscape shifts and market conditions call for a different approach.
Think about the markets that you’re in. What are the barriers to entry? In some construction industries, those barriers can be pretty low. If you move dirt, some guy might show up with a backhoe and can move some dirt as well. On the other hand, you may be in a very technical type of work where the barriers to entry are very high.
Here’s a helpful rule of thumb: If the barriers to entry are low, and the competition can come in and out of your segment fairly easily, then your plan may need to change as needed. On the other hand, if your barriers to entry are high, then perhaps your plan will have a little more durability.
Here’s another thing to think about aside from the barriers to entry: the rate of innovation.
If the rate of innovation is high in the areas that you focus on, then your plan may have low durability and you may need to change it up. On the other hand, if the rate of innovation is lower, then perhaps your plan can last a little bit longer.
My personal preference is to not put together those grand five to 10-year plans. Don’t get me wrong, it’s perfectly okay to cast a vision and say, “Hey, this is where we want to be.” But in terms of practicality, in terms of really making progress, I’d say one to three-year plans are at the max in terms of a strategic plan for success.
No one is ever too busy to plan.
Don’t think that you’re too busy to plan.
You may be overwhelmed right now by the number of projects that you have or perhaps the challenges that you’re facing in your business. However, it is your responsibility as the leader, as a senior executive in your construction company, to insist on time together with the core team to plan.
Planning doesn’t also have to be complicated.
Drive for simplicity even if the execution itself is complex. You should be able to nail what your niche is and how you can uniquely serve them. You should also have the discipline to have that discussion about how your company grows.
Perhaps you’re thinking: “But there are times when it’s too uncertain to plan. We’re just trying to make it through this week, this month, this year…” That’s completely understandable as well, but it still won’t stop me in encouraging you.
I also understand that no plan survives contact with the enemy. The process of planning itself puts you in a position where you’re making conscious decisions. And those conscious decisions then have a response from the marketplace, which you can then adjust to.
However, without those conscious decisions, all you’re doing is being in a reactive mode all the time, as opposed to being in a responsive mode.
So draw a line in the sand. Don’t get tossed to and fro. You don’t need to build a perfect plan. You just need to be directionally correct.
Here’s an example.
A Real-Life Example: In-N-Out, The One-Billion Dollar Company.
There’s a privately-held company with over 330 store locations. They’re very clear on what locations they have and where their set locations are.
If you drive up to any freeway in California, for instance, then you’ll surely eat at In-N-Out on a regular basis. They are way well known for their quality, freshness, and service.
They also get really close to their customers. I’ve never had bad service at In-N-Out. NEVER.
Now, I know their burgers aren’t perfect, but they are good enough, and they’re definitely better than McDonald’s.
Their service is better than McDonald’s.
Their bathrooms are cleaner than McDonald’s.
I like their fries and shakes.
They also have a specific focus on their business. They’ve said no to chicken. You go to In-N-Out and you get burgers, fries, and shakes. That’s it. They have a very simple menu.
Now, if you know the secret ordering process, you can get something really unique and they’ll make it for you, but their menu is still pretty simple. Burgers, fries, shakes.
They have a very clear niche. They get close to their customers and serve that niche well. Their growth is also disciplined as well. They’re not a franchise company. They’re not just throwing up locations. They’ve grown in a disciplined way over the years. And that growth, in fact, has set them apart because people are always wondering when In-N-Out is coming to their towns.
To Sum Up
So, to sum up, what is your niche? How can you serve that niche? How can you grow? Strategic planning is all about answering the question, how shall we be successful?
It also involves three critical sub questions. If you answer them right, your plan would be tightly integrated with your purpose and personality and be nicely summarized in a few short sentences on your triangle one-page plan.
Again, there should be simplicity in the statement of your plan, even though there may be complexities in its execution. There should be no confusion at the executive level.
In January 2020, Southwest reported its 47th consecutive year of profitability. They have consistently executed on a plan of success and they stand apart as one of the top airlines in the world.
2020 may be a bit tough for them because of the global pandemic but they have a solid foundation. They’ve nailed their niche. They serve it in a unique way and they grow in a disciplined manner.
I’m glad they’re flying to Hawaii because I’m planning on going there with my family for me and my wife’s 20th wedding anniversary.
Moving on, you need to gather your team and commit to planning. I highly encourage you to plan at least on an annual basis, checking in on that plan on a quarterly basis.
I’ll put a link to a spreadsheet. A construction niche analysis that I’ve put together that you can use. You can download it for free. It’s awesome. It will really help you to analyze.
Client. Location. Project.
Tightly integrate your approach. Get close to your customers and figure out how you can add value to them and solve their problems so that you can drive up revenue while driving down your costs.
Think through and plan how you’re going to say yes to some things and no to others so that you can drive that success.
Set yourself apart as a unique construction company. Nail your clarity. Nail how you’re going to serve your customers uniquely.
Finally, answer the question: how are you going to grow? Make sure you have discipline. Get two of those three circles right when you’re taking on a new project.
If you have any questions regarding this content that I’m sharing with you, reach out to me and I will respond to you within 24 hours.
Just go to the Contact Me page and fill in your details.
You can reach out to me on LinkedIn as well. The triangle one-page process is something that I’ve used with my clients for many, many years.
It’s extremely effective. It helps them with that clarity. It helps them with that uniqueness and with the discipline.