The world hasn’t stopped – neither should you.
By William Atkinson
Editor’s Note: Part 1 of this two-part series appeared in the Precast Inc. March/April 2010 issue. In Part 1 we discussed how precast manufacturers can manage themselves more tightly to reduce ineffeciences. In this segment, we discuss how to take advantage of government programs and consider new ways to look at business.
According to Paul Rauseo, managing director of George S. May International Co. (Park Ridge, Ill.), a small-business consulting fi rm, the United States is embarking on the largest investment in infrastructure since the 1950s. The American Recovery and Reinvestment Act of 2009 contains $787 billion, $90 billion of which is targeted for infrastructure. Of that, according to Rauseo, $48 billion is aimed at transportation infrastructure.
Rauseo has also seen a paradigm shift, at least from the government’s perspective, in terms of using concrete. One example is that, over the long-term, there has been a growing national emphasis on energy independence and environmental responsibility. As such, in terms of buildings, the Leadership in Energy and Environmental Design (LEED), a program of the U.S. Green Building Council, is putting a lot of pressure on governments and state agencies to move toward more efficient buildings. “As a result, I think we will be seeing a greater demand for concrete in the future in buildings,” he says. One question Rauseo gets a lot these days from precasters and contractors is how they can get a piece of the stimulus work. He recommends visiting Federal Business Opportunities at www.fbo.gov. “This lists hundreds of jobs up for bid nationwide,” he explains. “Primary contractors can fi nd work there. In addition, others in the industry can go to the site, identify primary contractors that have bids, and then go in as
Now from the practical to the strategic: One of Rauseo’s specialty areas when he helps clients is effi ciency and the “planned profi t model.” However, these days, a lot of clients explain that effi ciency is great, but you need some work to be effi cient with. In fact, Rauseo counsels some companies that have gone from 80 employees down to four, and he helps them rebuild with an expansion mentality.
Rauseo believes that if you are stuck in the mentality of “It’s the economy,” then there is little you can do other than sit and wait. In fact, the latest survey conducted by George S. May International shows that most small businesses tend to blame the economy for their failures. “What they need to realize is that they can’t do anything about the economy, but they can do
something within their realm of influence,” he says.
This is where “expansion-thinking mentality” comes into play. Rauseo has found that 70 percent of his precast construction clients who want work have to respond to job lineups that are not typical for their companies. As such, these companies have to take their expansion mentality outside of the normal course of business and comfort zone, and move into areas that allow them to take market share. “There is business out there, but you have to adjust your business model in order to gain access to it,” he explains.
According to Rauseo, the largest growth area in precast is architectural products and decorative concrete. “If you’re not in this, you need to consider it,” he emphasizes. A big part of this market involves remodeling existing buildings for more energy efficiency as well as restoring historic buildings. This used to be about 5 percent to 6 percent of a precaster’s business on average, he has found. Today, he believes, it is much higher, sometimes up to triple the amount of the old average.
“When we work with companies, we see what kind of work they are doing that involves LEED,” says Rauseo. “This could become a big percentage of the new work they get. We also see what they could be doing in terms of decorative concrete.”
“There is business out there, but you have to adjust your business model in order to gain access to it.”
– Paul Rauseo, George S. May International Co.
A totally new way of looking at business
George Hedley, owner of Hardhat Presentations (Costa Mesa, Calif.), agrees with Paul Rauseo, that you can sit and wait for things to change, or you can decide to do something about your future. Hedley’s contention: Those who sit and wait will die a slow death. These are the people who say things like: “The economy is slow. We are working really hard, but we are not in control. There is too much competition, and competitors are bidding too cheap.”
Hedley likes to look at things differently. “I’m a firm believer that you choose every day how you want to run your business,” he says. “The way I look at it, we had 15 years of positive growth in the construction business. Then all of a sudden, starting around 2007, the economy went backward 20 percent to 40 percent for most contractors.” The companies affected most by the downturn are those in the new construction, remodel and architectural product business.
Hedley has found that a rising tide lifts all boats. During a good economy, everyone stays busy, and everyone can make money. “As a result, everyone thought they were really good and really smart,” he notes. “However, the reason you were succeeding was because you were operating at full capacity, efficiencies were relatively strong, and you didn’t have to be that good of a business person.” If you were in business, you were going to get business.
“Now the tide has gone out, and we don’t look so good with the water around our ankles,” he continues. “It exposes all of our weaknesses. Companies find out that they had no systems, poor technology, poor training, poor marketing and sales.”
“If you try to run your business the way you once did, you will go out of business via slow death.”
– George Hedley, Hardhat Presentations
In response, according to Hedley, a lot of business owners sit idle and say, “I hope the business comes back.” They are waiting for a return to normal – the way things used to be. However, he believes, it won’t go back to being what it was. “It is what it is, and that’s what we’ve got,” he says. “And it will be this way for a long time – another two, three, four or five years.” If it comes back sooner, great. But in the meantime, he believes, business owners have to look at their businesses the way they are, not the way they were. “If you try to run your business the way you once did, you will go out of business via slow death,” he cautions.
To succeed, he believes, you first have to get back to some basics. You have to hire and keep good people, you have to get rid of poor performers, and you have to create excellent sales and marketing programs. “This means building a real business and looking for ways to grow and make a profit,” says Hedley. “This means looking for new opportunities, new customers and
new services.” In sum, you also have to figure out how to make a profit with 20 percent to 40 percent less business.
Next, know what you want. How much profit do you want? How much sales? Then build a plan to make it happen. Do you need more financing? More products? An online catalog?
“Again, it is what it is, not what it was,” he says, citing an example: If you were a $5 million and now are a $2 million company, you are, by definition, a $2 million company, not a $5 million company in a slump waiting for things to come back.
So the question is: How do you grow your $2 million to $2.5 million, to $3 million, etc.? “You can’t just sit back and hope it comes back to $5 million on its own,” he says.
“No one goes into business to say they want to survive and break even. Think out of the box; think bigger.””
– George Hedley, Hardhat Presentations
According to Hedley, the old ways won’t work anymore. There are too many bidders on every job. You need to come up with new things. “Walk around your facility,” he suggests. “You probably have old tools, old equipment, old workers, old ideas, old catalogs, old websites. Get rid of them and start over.”
This means making some tough choices. Work radically different. In the past two years, most business owners have made small changes – reduced overhead, cut some expenses – trying to save their way to success. However, Hedley believes, you have to think of your business as a new business. You have to invest in something for the future. In the future, survival is not the goal. “No one goes into business to say they want to survive and break even,” he points out. “Think out of the box; think bigger.”
He sees several choices you can make. One is to decide to beat your competition. This is the toughest choice – continuing to do what you’ve always done, and just working harder. You used to bid against two competitors, then four, now eight. How will you beat your competition when there is always someone more desperate for work than you?
If you want to go this route, Hedley recommends that you clean house. Clean out deadwood, dead systems, dead equipment, dead products. What is choking your company and costing you money? Then get out of your comfort zone. For example, if you have always done sewer manholes for private developers, you may now need to get into public works projects. “City projects are difficult, but there is less competition,” he explains.
All of this is difficult. All you know is what you know. How are you going to learn new stuff? You have to change yourself, Hedley believes. Bring in new people with different ideas from different industries who do business differently. Look for new suppliers. Bring in new equipment.
A second choice is to start with a clean slate. Find new customers and new markets that want what you offer. “You can’t sit and wait for your phone to ring from old customers,” says Hedley. “Just because you have built sewer manholes doesn’t mean you are a sewer manhole company. What else can you offer?” For example, can you get into retail – as in sell your products at Home Depot? What other services can you provide? Can you provide leak management services on freeway overpasses?
A third option is to look for new business opportunities by creating strategic alliances or joint venture partnerships with your suppliers, other companies you compete with, or general contractors.
Fourth, consider several streams of income: selling products, providing maintenance contracts, and investing wealth income. Where will the latter come from? “You may have a million dollars in your yard,” suggests Hedley. What can you rent or lease? Then invest that money, which will provide income for you every month. A roofing company with which Hedley is familiar got into the pallet business, because they have so many pallets in their yard. “Now they do $5 million in pallets a year,” he says.
Finally, look toward the future. For example, what does infrastructure spending hold? “This won’t create business,” says Hedley. “It will simply keep level what was once work during a strong economy. In other words, stimulus money won’t create new work; it will just maintain work, where the economy would otherwise reduce it.” Still, it may offer new opportunities. “Again, you can’t just expect doing the same old stuff. Find the hardest work to do, and go after it. If you used to make vaults, that’s easy. How about precast custom work? A precast item that was traditionally poured in place – a buttress wall, an underground structure.”
You also have more competitors. So, Hedley suggests, go after the difficult work that fewer competitors go after. “I know a road builder who only goes after the most difficult jobs, because there are only two or three bidders,” he notes. “He is going after the tough tunnels and overpasses.”
And don’t forget marketing. You need to have an active program to see your top customers at least four times a year – lunches, dinners, baseball games and so on. “When the economy was strong, you didn’t have time for that,” he explains. “Now you do.”
Bill Atkinson, Carterville, Ill., is a freelance writer who covers business and safety issues.