I always wanted to set up my own business. But being a Construction Professional yep, you guessed it, I tended to over complicate everything in my head. I was always worried about:-
- How would I fund the business (if you are interested in learning more about funding Specialist Contracting Business just click on this link here)
- How will I generate work – I did not know how to get leads.
- How would I manage quality.
- How would I manage trades and people.
- How would I get paid…..
The list was absolutely endless I almost invented ways of which to prevent myself from setting up my own Specialist Contracting Business.
The reality was a lot of these problems are very real and certainly likely to happen in a General Contracting business and I had spent my career working as a General Contractor’s QS, Commercial Manager and MD.
There are so many moving parts to a General Contracting Business. You are literally a Jack of all Trades and expert of none. You are a generalist rather than an expert in any particular area and this leaves you exposed to quality mistakes, production issues and most importantly the wool being pulled over your eyes by other Specialist Contractors!
Your payment cycles are longer and most of the money belongs to subcontractors and your margins are wafer thin. So any little mistake in production or quality and you will find quickly that you are in a negative position on the job and possibly suffering cashflow issues. This is the environment that most of us Construction Professionals are used to.
But the reality is it does not have to be this way.
I started to notice a trend of just how profitable Specialist Contractors could be when I became a mentor with the County Enterprise Board where I lived at that time. So at that moment in time, I was Commercial Director of a very successful General Contracting Business and the County Enterprise Board asked me if I could work with smaller companies in the construction sector to guide and mentor them to grow their business.
One by one I started to meet these Specialist Contracting Companies, plain simple companies like painting businesses, dry wall contractors, plant hire companies and I started to notice a continuous trend.
They were insanely profitable…
They needed mentoring, sure but all of them had fixable issues like they haven’t systemised their business so therefore the business didn’t function without them or they hadn’t put commercial controls in place and yes, they were sometimes struggling to get paid because of that. But all of these things were easy to fix.
The thing that really stood out to me was how profitable they were, most of these businesses were making a general Gross Profit on projects of 20 – 30 even 50%. In fact, one business that I worked with, a Specialist Piling Business was making 70% profit on a lot of their projects. I was simply staggered when I realised this.
Because the reality is that General Contractors are The Squeezed Middle.
General Contractors take all of the risk, they got out there and they win the work often at wafer thin margins. Usually 2 – 3% then they look to sub – contractors i.e. Specialists to carry out the majority of the work.
However, the specialists are the real experts in their field. They control their supply chain they have got people who are experts doing the same work each and every day. I noticed this continuous trend with the companies I mentored, the owners seemed far less stressed, in fact most of them spent every Wednesday playing golf because their businesses seemed to operate with or without them at the helm. And, generally because of the high margins they were able to charge even if they had a bit margin erosion, they were still making money – unlike the General Contractor who is quickly in a loss making position. It was a real Epiphany for me and the more I spent thinking about this over the next two years the more I realised that if I went into business for myself it had to be as a Specialist Contractor.
Concept of Specialisation What Is It
There are many ways to specialise in construction. Some of them might be related to the contract that you work under, then location that you work in, the project that you do or the type of speciality.
BUT THE #1 COMMON THEME IS THAT THE BUSINESS IS FOCUSED ON 1 AREA OF BUSINESS.
Small, Does Not Mean Less Profit
Remember going small does not limit your ability to make good money. The more niche and specialist you are the higher your margins will likely be. Specialist Contractors generally earn, 3 – 5 times more profits than larger General Contractors.
So let’s say you are a midsized General Contractor, turning over $15 million annually, earning an average profit margin of 4%. You are making $600 000.00 per year profit.
Where on the other hand, let’s say you are in Industrial Concrete Repair business, earning a 20% margin on average. You only need to turnover $3 million a year to make the same margin.
I know Which Business I Would Rather Own and Run!
The core advantages of a Specialist Contracting Business:-
- Funding – I have talked about this extensively it is so easy to raise funding and so less expensive to set up a Specialist Contracting Business (click on the link here to see why).
- Leads on demand – It is so easy to generate leads for a Specialist Contracting Business, which is the total opposite case for a General Contractor. A Specialist Contractor who focuses on, let’s say for example Water Disaster Repair. All they have got to do is, leverage their existing contacts or use advertising.
- Google Ad Words – Understanding the power of Google Ad Words was a massive shift in my thinking about how easy it was to set up a Specialist Business. Let’s look at my example of Water Disaster Repair. All you have got to do is set up a Google Ad Words Campaign so that anyone who types in Water Disaster Repair in your area, your Ad appears on the top of the Google search via an Ad. Then you have got to have simply got to have a website with your contact number so that when the customer clicks on that, they go directly to your website and you get a call from a client who needs water disaster repair right now. Literally all you have to do is generate leads, set up a campaign and when you want work you simply feed money to Google and your phone starts ringing immediately. It is genuinely, that simple to generate leads for a Specialist Contracting Business.
- Easy to Put Systems In Place – The big advantage to a Specialist Contracting Business as opposed to a General Contracting Business is you are a Specialist as opposed to a Generalist, so.
- You are doing the same work over and over again so you can systemise it.
- All the suppliers, materials, work methodology is the same each and every time.
- You can break everything down into simple quality control checklists. So when somebody does something before they sign it off, they simply go through a checklist to make sure they have followed your method statement and they have the work to the right quality levels.
- You then just simply train people in the checklists.
- Then you the owner, check the checklists.
- You train the people how to do the work, you train them in the checklists and you follow up and you performance manage those who do not do the work to the work to the right standard and, you have total traceability because you have got checklists and it is so easy to do.
This might sound boring, but there is nothing boring about a business that runs like clockwork, making you money whilst you get to spent time doing what you really love.
People love it because they understand what is expected of them. Trades are happiest when they know the rules of the game and they are given clear instructions as to what is to do and then they are rewarded and recognised when they do it well. That is all any Trade wants to do and it is so easy to do in a Specialist Contracting Business.
- It’s Easy to Manage People – Managing people, normally is never easy but I promise you in a Specialist Contracting Business it’s far easier. There is a number of reasons why:
- You can break everything into checklists and as I mentioned before you manage people in the checklists and as I mentioned before. They love it because they know when they are getting recognised and rewarded for good work.
- People enjoy the responsibility when roles are clearly defined, unlike in a General Contracting Business where your foreman and your people are constantly wondering what to focus on.
- You know the work will be done the same way each and every time so it is easy to track.
- And when something goes wrong, where the breakdown happens so that you can identify responsibility and train the people so that it doesn’t happen again or if they are continuously not doing it right, you performance manage them out of the business.
- You can easily do daily costings – I worked with one sub – contractor and that all he did is every evening get his Foreman to give a WhatsApp message with the production for that day and literally within 10minutes he was able to calculate out his profit and loss for his business that day. It is so easy to manage people in a Specialist Contracting Business.
- All of this gives you a business which you can scale.
- Which is way more profitable.
- Which you can potentially franchise out, which thousands of Specialist Contracting Business Owners have done and then you get money from other people’s Specialist Businesses.
- Sell – A Specialist Contracting Business is really much more sellable than a General Contracting Business. Because it has got a brand, because it has got specialisation, because it generally has key Supplier Agreements and a whole load of IP which people are prepared to pay for and invest in.
If you have ever thought of setting up your own business in construction, I hope now that you realise that a Specialist Contracting Business is definitely a much more easier, much more viable, much more rewardable, profitable business for you to focus on.
If you are interested in finding out more, simply click this link for our FREE Training.