The Construction Contractor's Digest

Small is Big – Construction rewards the small construction firm. That is they make a higher percentage of profit. This is a variable cost business. In other words, you do not have to have “critical mass” to be profitable. Net profit statistics consistently show that smaller contractors make a higher percentage of profit before tax than their larger brethren do. Construction is one of the few industries that the big don't eat the small, the fast eat the slow.

Tangible – Our industry erects monuments. Our work is visible to everyone. We can see it for decades after completing it. Construction people show friends, relatives and potential clients these projects. Unlike other industries, we see what we accomplish every day. Likewise, there is little room for puffery i.e. “smoke and mirrors”.

Highly Paid - The construction industry for a non-supervisory, production work pays the forth highest wage of all industries. Current average hourly wage is north of $19.00. Industries who compensate production worker better are 1) Utilities employees and high voltage workers. They are the highest paid. 2) Petroleum and Coal (Miners and Roughnecks) 3) Information or computer technicians. 4) Construction journeymen. The lowest 1) Apparel - lowest 2) Textile 3) Retail Trade

Best Earning Years Later in Life – Statistically, this is difficult to prove. However anecdotally, I have seen enough financial statements to strongly believe that this true. The prime earning years appear to reside in the 50’s. In my travels working with clients in the United States, the older contractors do have competitive secrets and keep them to themselves. As a trend, a contractor's profitability grows over the years. I have seen increases as either percentage or gross dollars or both. Construction becomes more profitable with experience.

Why? Because the business is about people and processes. A senior contractor has had plenty of experience with both.

People: he knows more people just by the years he has been in business. He also knows which ones to coddle, to chastise, to put an arm around etc. to get the most out of them.

Processes: experienced contractors know what doesn’t work. They have certainly tried a lot of good ideas over the years. They simply know what works and what doesn’t. Additionally, they don’t make the same mistakes that a younger, less experienced contractor makes. Hence they have a competitive advantage.

In contrast, the best earning years of most other industries are between 35 and 50. (Professional Sports excluded). The reason for this early, high compensation is the energy, the willingness to travel, to take risks and to make extraordinary things happen. However, profitable construction is based on consistent and correct processes, somewhat like the manufacturing business. The more consistently a person does the correct things, the better the outcome.

To re-emphasize, construction contracting consists of two components –people and processes. An older executive does have a deep understanding and experience of handling people and building projects. (They have the scare tissue to prove it!) My conclusion is a contractor’s best earning years tend to be in their 50’s and 60’s.

No Consolidation – The construction industry is an owner – operator business. Efforts to consolidate have shown the power of the small business – you cannot beat an owner who is risking his wealth every day. Large firms are at a disadvantage. Again, small is big and the fast eat the slow. This translates into hundreds of thousands of family owned businesses that will continue to operate as long as there is another generation willing and able to take over.

Local – Where can a construction company be started? Anywhere! Construction expertise is needed in all fifty states. It does not need a port facility or wide open spaces to operate. You can start one where you live and that is family friendly. An important consideration these days for all working professionals who want to stay closer to their spouse and children. Local projects mean less travel and more time with your loved ones.

No college degree needed – Construction people who have worked in the field for several years have the equivalent of a college degree. A majority of construction knowledge is earned while working not studying. Technically, you learn how to install quality work with your own two hands. College students studying construction don't go to class with their tool belts on. I strongly believe that someone who has owned and operated a construction business for 20 years has a master’s degree maybe even a Ph.D.

As an example, I have a sister who is horse trainer and never attended college. Peggy has been working in the equestrian business since she was 11. That makes her experience 30+ years. One of her students (and by inference, Peggy) won one of the highest honors in Hunter – Jumper competition. No small feat. Due to this, I insist she has a PhD. in Equestrian Management.

No large capital investment needed – As is legend, some successful construction firms have been started with no money. In this business, beginning capital is not a major obstacle. This is a cash flow and variable cost business. To start, a contracting firm, a person does not have to float an IPO or have a rich uncle. What they need is an understanding of the economics and construction craft skills.

Shortages of people wanting to be in this profession – Industry economists agree that we still have a shortage of people employed in Construction. Conservatively, the number needed is over 100,000. As we have learned in our lifetimes, the Demand / Supply curve is very powerful. A shortage of anything drives the price up. Competent construction professionals’ earnings have outstripped general wage increases in other industries. That is job security as well as wealth building. Ask a computer programmer or an airline pilot about over supply of people and the effect on wages and opportunity. Your parents may remember the oversupply of engineers in the 50’s. It is a danger to any professional; however, there is no danger to construction people in the foreseeable future.

What other industry has all these attributes? The answer is none. Although, the perception persists that our industry does not have much to offer young people. It is not true. Surveys have shown people in construction do not recommend our industry to their children.

A major association recently queried its members with the following question: “Would you recommend this industry to your son or daughter?” The answer came back as 72% said “no”. (They must not have read the previous pages)

A survey by a major newspaper recently asked high school seniors to rank a list of 50 professions as to desirability. Do you know where the construction business came in? 49th next to migrant farm worker.

We must stop this habit. Simply put, we should communicate the facts to the interested parties. I challenge each of us to promote our industry. Let the truth be told.

Matt Stevens is a management consultant who works only with construction contractors. He has performed training and business consultation for the contracting community since 1994. Matt can be reached at mstevens@stevensci.com.

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