Construction Partnering and Succession Planning
The following is an edited transcription of my interview with Mike Ghilotti, President of Ghilotti Bros., Inc. To listen to the complete interview click this link.
Eric: It’s a pleasure to have Mike Ghilotti of Ghilotti Brothers Construction with me today on the show.
Mike: Thank you Eric, proud to be here.
Eric: Take me back to the time when there were four separate Ghilotti brother companies bidding on one public works project in San Rafael, California.
Mike: This is about three years ago. It was a smaller project—about $585,000—and there’s only four bidders. We have a bid runner there, and they open up to bid results, as they do at 2:05 p.m. They read out the results, and of course, you’ve got to be low bidder. It’s all about bragging rights. There are four companies bidding. There’s Maggiora and Ghilotti, there’s Team Ghilotti, there’s Ghilotti Construction, and of course there’s Ghilotti Brothers, the best, which is our company.
They read out the results and we’re low bidder by about $15,000, and we’re all excited. The bid runner goes out to talk to the lady there, the administrator, and he says, “OK, this is who I am, so please send the information to me, we’re ready to do the job.”
And she says, “Hold on, we’re not ready to say that you’re the responsive low bidder.”
And he responds, “We’re the low bidder—we are Ghilotti Brothers.”
She says, “I’m going to hold on for a little bit because I’m concerned there’s collusion.”
And the runner responds, “Do you know anything about the Ghilottis? Are you new to San Rafael?”
She says, “Yeah, I just got here a couple months ago.”
He said, “Don’t worry, you just got the cheapest price you’re ever gonna get by having all four Ghilottis bidding on the same job.”
Eric: The Ghillottis have over a century of history in Northern California building projects.
Mike: We go back a hundred and eight years.
Eric: Say a little about the history, how you got to the four different companies, and where you are headed.
Mike: It goes back to my grandfather, James. He came from Grosio, Italy, up by Lake Como, straight to San Rafael, California. He heard about the 1906 San Francisco earthquake and he was a stonemason. A tradesman.
He works for a couple of years, then decides he wants to get married. But he’s got to go to Italy to find a wife.
Eric: No internet back then, right? He has to go all the way back.
Mike Oh, my gosh—I wonder how people got around. James came from Italy with no G.P.S., no A.T.M., no cars, and no cell phones. I can barely get into San Francisco and back without problems.
But back in California he starts a company in 1914, and in 1950, after getting some of the kids into the business and enjoying it… he’s getting on in years and tells them that they need to buy the business from him. He needed a 401k to help his wife after he passed on.
The four brothers buy the company, and they take off in 1951, and they grow that thing like crazy. But the oldest brother Willie, who was really the glue in the family, died in 1964 from a stroke. So now you have the three other brothers. One that’s absolute crazy, wild, brilliant, but challenging to deal with. And the other two brothers worked well together, so eventually, Babe, the challenging brother, started his own company.
My Uncle Dino was one of the other two brothers who worked well together. After he passes, my cousin, Dick Ghilotti, starts his own company. It evolves and there’s another split later of two of the brothers.
It’s probably the most unique story in the construction industry up in Northern California. In this small region there four James Ghilotti descendants, all doing the same type of work, all working in the same region and competing against each other.
Eric: What’s been the biggest personal challenge you’ve faced with those family dynamics?
Mike: How to deal with the people that work for you. And they have the challenge of reconciling their own identity with the Ghilotti name. Everybody knows Ghilotti. Developers know the name but can’t differentiate you from another company, and they just assume that it’s all one, big company. That’s a challenge.
Eric: Every company is looking to distinguish themselves from other companies, but your challenge is particularly acute, simply because there’s other Ghilottis. In terms of marketing, how do you distinguish yourself from other Ghilotti companies, and from outside competition?
Mike: We’re a nonconventional construction company. So many companies like to come out, build the project. and move on. I was on the Caltrans partnering steering committee. In 2016, when they had a big bond measure and wanted to get back into partnering, I realized that our best value is to work with developers, work with clients, and mitigate risk and align expectations. That’s really where we shine.
Eric What is the key to a successful partnering project?
Mike: Right out of the gate, you need to identify your risk and your opportunities. It’s called a “risk opportunity register.” We do that with every job. Every entity, every client, every agency has risk. Every contractor has risk. To develop a great partnership, “How do I help you mitigate your risk, and how do you help me mitigate mine?”
Contracting used to be done out in the field, with people that were empowered to make a bargain. “I’ll help you out and you help me out.” Now we’re in a more formal setting, when we do facilitated partnering, but it starts with mitigating risk. Also, aligning expectations.
Eric: Set those big, audacious goals.
Mike: Yeah. What are we going to do on this project? We’re going to finish early. We’re going to be under budget. We’re going to do value engineering. What will our safety program will look like? Those questions set the tone for the job’s performance.
Eric: What’s the biggest challenge when conflict arises, even in healthy partnerships?
Mike: That’s the number one challenge. Conflict lingers too long out in the field. It disrupts the team’s cohesiveness that the resident engineer, or foreman, or supervisor establishes, and then it poisons the job, and everybody retreats into their corners.
The best solution is to elevate it quickly. We set up an escalation ladder for issues. And it’s not a reflection on the team or implying that the team can’t solve the problem. It just diverts the challenge so that they can keep building. We move the challenge up to the next level so that we can solve it and move the job along.
When the problem is removed from the people that live and breathe it, you might see it from a different perspective. You can figure out a solution to move it along, and there’s less chance of the problem turning personal instead of professional. The escalation tactic usually results in a good outcome.
Eric: How would you like to see the typical partnering process enhanced?
Mike: In partnering, there are private entities that are very motivated to move the project along and to meet their goals. The biggest challenge on the agency side is that they’re not empowered to make decisions. They’re not able to finalize tasks, or make agreements, and they don’t have the resources to perform at our level. It’s tough to keep both engines going at the same time, when the agencies and the owners don’t have that capacity.
Eric: So, in addition to the alignment of expectations, a power structure alignment is also required, to get people in the agency at the level to make those crucial decision?
Mike: Exactly. As an organization, we have confidence in our project managers. We empower them to go do a good job. They may need to check in, but they’re keeping us informed. We have to make decisions every single day. We’re geared up for that.
The agency is not. They’re more bureaucratic, top heavy, with lengthy turnaround times, all of which reduce the momentum you need to build a project successfully.
Eric: It’s a challenge in culture. The public sphere, the agency sphere is slow and not entrepreneurial compared to the culture of a typical construction company.
Mike: Absolutely. It’s bred into the system They’re not rewarded for making quick decisions. In fact, most agencies and most cultures penalize people for making decisions, even if it was ultimately a good decision. It might have saved time and money. But nobody wants to put their neck out anymore and take the risk. It’s easy to be a 20/20-hindsight person, but construction companies burn daylight every day. We’ve got to build.
Eric: Have you had any success in that area with private owners or developers?
Mike: It’s even more crucial in that arena. They more closely resemble the construction companies. They have more to risk. The agency doesn’t understand and acknowledge the risks they have. They’re more insulated. But private owners and developers and clients appreciate when you come to them with goals for the project. Like, “I want to get out early. I want to do it under budget. I want to mitigate your risk. Let’s sit down and figure this out.” And your private clients enjoy the heck out of that.
Eric: Are you guys on a GC right now? Are you more of a sub with your projects?
Mike: We’re a general engineering firm. Paving, grading, underground, concrete. For the horizontal construction we do pretty much everything. We are a GC.
Eric: Can you as the GC establish, even in the private situation, a partnering type of relationship?
Mike: Absolutely. And I’ll take it a step further, Eric. The best value is to get in early and help pre-construction. Then you’re helping them as a trusted business advisor, and can say, “Hey, this is a great concept or a great design. Did you think about this? I can save money if you reformulate the engineering criteria here, or the design spec.” Then you’re mitigating it before the job even starts.
Eric: Do you perform most of your work, or do you have subs involved in the partnering process as well?
Mike: We do have subs. That’s a challenge, especially on the big, heavy, highway contracts we do for Caltrans. We have subcontractors that have about 5 or 10 percent stake. They may be in earlier, or they may be in late, but you want to include them. But how do you include them in this process and make them feel like they have value? It’s a challenge.
Just communicate early, and often, and ask for their input at the very beginning, and then try to get them up to speed as they’re ready to come in and be a part of it. Your subs are keys. Bring them in, and again, align expectations. You tell them, “This is what we need out here and this is what we’re up against.” When you bring them in, the more successful your project’s going to be.
Eric: Shifting the conversation a little, back to the idea of generational succession. What is your plan for your company in terms of its legacy?
Mike: It starts with a good management team. I’ve been blessed that I’m not on the front lines. A lot of construction company owners start a company and they’re the front line of everything. They’re taking the calls, going out and solving problems, or collecting money—taking care of regulation. I really feel for them. I’m so blessed because as a third-generation owner, I’m insulated.
Now we’ve got the next generation of Ghilotti brothers. Gen 4 is my son Mario, who just graduated from Cal Poly—he’s been with us for three months. God bless Cal Poly. A great out-of-the-ground program. And he’s got three siblings.
I’ve worked in the past with fractured companies that don’t have a plan for the next generation. I started early, when I was raising these kids. I wouldn’t even let them get in fights, because early conflict can lead to brothers arguing when they go into business together. It can go all the way back to when they were nine years old, when one kid beat up on the other kid. So, I’ve been working my whole life to make sure that they respect each other, so that when they do have the opportunity to work together, they won’t have barriers to being good partners.
Eric: It sounds like from a very early age your expectation was that they would come into the business. How have those expectations lined up with reality?
Mike: I started at 13 years old on a grease truck and worked all my way through labors. And when I graduated from college, I was never asked by my dad if I wanted to come into the business. And I never asked him. It was a weird dynamic, but I just knew that I would do it. I don’t know if that’s how it’s going to work for my kids. It certainly did with my oldest. But for the other three, I’m trying to set the foundation so that it’s there if they want it.
I had a breakthrough the other day. My youngest son, who’s now a junior in high school, acknowledged that my efforts to ensure peace among his siblings is working. He said, “I’m so excited to be able to work with my brothers when I get out of school.”
Eric: That’s some deep insight right there.
Mike: Absolutely. I’ve also taken into account each of their personalities. My son Mario is exactly like my father: 100 percent energy, passion, and makes decisions. He’s a go-getter who wants to take risks. And my other children, not so much. I have to work with Mario on being a consensus builder. To bring everybody along. I tell him, “Working with siblings in this business, you can’t just decide to go do something without bringing them with you.”
Eric: You’re making sure that your kids are earning it. That they’re not just daddy’s boys, showing up one day and getting the nice office, and the sweet truck, and everything.
Mike: I gave it a lot of thought. I got my MBA, at night, when I was about three years out of college. I was working during the day. I did a case study on the Coors Beer family, and it doesn’t matter what your name is, with Coors you have to work your way up. If you were Peter Coors, you still had to interview for a management position, and you had to earn it.
But not everybody knows what they want to do when they come out of college. Many people, once they find a happy home, then they grow, and develop, and mature. If you worked your butt off, starting a construction company, do you really want to just give it to your kids? It’s a challenge to know where to fall on the issue. Maybe your kid’s not ready yet, or you want him to really earn it.
I get frustrated with some owners that want to drill their child into the ground and make them earn it. And by the time they do, they may say, “Hey, I’m out of here. I don’t want to deal with this anymore. All you do is beat me down, and I don’t even get to see the big picture.”
You’ve got to help your kids see the possibilities. So that they might get hooked and want to jump on board. And we had this past summer with my second son. He’s a six-foot-seven football stud. He’s outside, working all summer, every summer, and it’s OK. But it really hasn’t grabbed him.
My oldest, Mario, is the operations guy that understands the whole building side of the business. And I had to think of something different for Gino. I talked to our vice president of estimating to have Gino give that a try. We sent him in and gave him a job, cold turkey. He bid the thing. He is so excited about doing estimating now. In fact, his second job he was low bidder, and he left and went back to college. Guess who ended up getting the job as the project manager? Mario, my oldest son. He says, “I don’t want Gino’s job. He doesn’t even know what the heck he’s doing.”
Mike: It’s vital for companies with multiple siblings that are going to hand over the reins, to find a niche for each one of them. Find something that they’re passionate about. With businesses, there are so many different niches. Empower them to find their arena and provide some separation between the siblings.
Eric: How do you handle the paternal dynamic when you’re correcting them?
Mike: I’m an interesting breed. I’m not a 100-percent diehard construction guy. I grew up in an industry where if you made a mistake, you were yelled at. You learned the lesson the hard way. But I’m a fusion of a lot of different personalities and business approaches. I consider mistakes to be learning experiences. Make sure that they understand, and that they improve, move on, and are successful the next time around. I’m a proponent of continuous improvement. Everybody makes mistakes. Just because your name is Ghilotti doesn’t mean that you’re God’s gift. You’re human. Just don’t make it a second time.
Eric: Five or ten years from now, what would you do if only one or two or even none of your kids wanted to be in the business?
Mike: I think about that a lot. I would approach it the same way that I am right now. I’d make sure that there is an opportunity for each one of them. At the end of the day, you may not like construction, but do you like business? With business, you need to make sales. You need to manage costs. You need to make a profit. You need to deal with people. Any business including construction has many different facets. There’s something for everybody. But even if only one kid goes into the business, that’s great. If I end up with no kids in the business, then I get to start working hard on their grandkids.
Eric: Going back to our earlier conversations, what are three action steps a contractor should take to ensure a successful partnering project?
Mike: One, learn the client’s expectations and goals for the contract. What would their idea of success look like?
Two, what are the risks, and how do I mitigate them? What are they up against? Is it money? Is it time? Are there third-party stakeholders that they’ve got to worry about? Align with those concerns and demonstrate that you can mitigate the risks.
And third, be a trusted business advisor. A lot of contractors excel at the “gotcha” moment. That’s when you ask for a change order because you have them backed into a corner. If you’re a good contractor, get out in front, make sure that you know the road that you’re headed down, and identify problems when you have enough time and resources to address them.
Eric: I’ve never heard a construction person stress the importance of being a trusted business advisor. That’s a wonderful perspective.
Mike: It originates from the partnering side. I’ve had private project meetings where senior agency reps will be unable to determine if our employees are with the agency or with the contractor interest, because our approach is project-first. It’s not a contractor-first approach. Our industry has a me-me-me problem, as in, “How do I take care of my problems, and what’s best for me?” And that doesn’t solve the equation. Rather, it’s how do we make the project a success? And then everything else follows.
Change is going to happen. If the owner trusts you, they can ask you, “How do I solve this?” And you’re going to come to a fair settlement. But if he doesn’t, then it’s going to be the change order game. “I’m going to start really high. You’re going to start really low and we’re going to waste a bunch of time trying to figure out how to come to the resolution.”
Eric: What are three action steps for someone to pass their business on to the next generation?
Mike: In a generational business it’s important that you’re real and you’re human. You have to be vulnerable just like any leader and be willing to accept the fact that you are only human when you’re an owner. And sometimes the next generation looks up and says, “That’s too much risk. It’s too much responsibility. Too much stress.” You have to demonstrate to them how to handle all of that. Think about quality of life. Don’t bring your construction life home. It’s so common that when the next gen gets ready to take over the business, that they’re totally put off by what the stresses do to the founder. Accentuate the positive things, the good things that come from being in business. The joy of accomplishing things and having a business so that you can take care of you family and be a resource for their livelihood. So that they can grow and prosper. We really treasure that.
Eric: I’m hearing three main takeaways about family. First is that you worked to build healthy relationships between the siblings, understanding that the way they relate to each other when they’re young will have a massive impact on how they relate to each other when they’re adults in the business. Second is being flexible about the position they should take in the business. Your one son was not enjoying being in the field. He came into the office and immediately took to estimating. And third, particularly when they’re growing up, doing your best to keep a separation between work and family. So that it’s not consuming you.
Mike: Correct. I was blessed with a mentor in my dad, who is very even keeled. Didn’t get too high, didn’t get too low, used humor to break down the stress. You’ve got to be able to do that as the first man or as the older brother, or else your kids are going to think, “I don’t wanna be like you—you’re a mess. This is a crazy business.”
Eric: I like to ask all of my guests—what is your favorite place to eat?
Mike: A little Italian restaurant. Imagine that. It’s in Corta Madera, California, called Marine Joe’s. The cheeseburger is to die for. So, go in there and talk to Paul Della Santina. He’s gonna give you a good meal.
Eric: Mike, I really appreciate your insights and your time here. You’ve given us some great takeaways around the partnering and generational aspects of construction. Thank you for taking the time to speak with us here today on the Construction Leaders podcast.
Mike: It’s my pleasure.