Why do building companies get stuck at a certain size?

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Have you ever said to yourself: 

• “I thought we were going to have a great year because I doubled my volume. But instead of doubling my profit, I lost my shirt!” 

• “We’ve tried to do $1 million turnover each year, but can never quite get there” 

• “I know I could grow if I just got out of the day-to-day stuff and spent more time selling”. 

• “We consistently do $2.5 million turnover but can’t ever seem to grow beyond that point”. All the above are common catchcries from the majority of builders — particularly from Registered Master Builder members who want to grow their business and who, for one reason or another, reach a certain size and then often stagnate at that level, unsure of how to progress to the next level. 

So the question is how do you break the shackles and push on with profitable and manageable growth? 

There are some basics to understand: 

• Maintaining steady growth in our industry is not possible — it nearly always happens in spurts. 

• Doubling sales volume at $200,000 is much easier than doubling volume at $2 million. 

• Business growth is based on process, delegation and management skills and less on technical and building skills. 

• Companies go through evolutionary stages to grow. There are typically five stages of small business growth, and it is worth understanding these and identifying the stage you are at. It is also important to understand that the stage you are at is not set by turnover but, more importantly, by your number of employees and the management structure you operate with. 

The typical steps are: 

Existence Stage — Hand to Mouth The owner does everything with the number one concern being cashflow and the ability to meet the bills each month. The business focus is based solidly on getting customers and delivery of product. There is little to no strategic planning, and the operation is one bad job from going out of business. I would hazard a guess that the majority of small builders are in this category.

 Survival Stage — Bumbling Along This is where the owner still does everything but is starting to develop systems and doing some basic business disciplines — such as using cash flow projections — but there is still no strategic or longerterm planning. Companies can be profitable but usually by accident as there will be little defined or repeatable process. 

Success Stage — Owner Rules Supreme This is where you can make it or break it. There are two paths that can be taken — one planning for growth, the other disengaging and staying with the status quo. The success-disengaging path is where the company may have some functional front line managers but the owner still rules supreme. There are basic financial, marketing and production systems in place. 

However, growth is seen as painful and/or frightening and, accordingly, the company performance plateaus at a point the owner feels comfortably in control. All this said, the business can continue in this phase for a long time. The success growth path, conversely, is where the owner sees growth as the focus, and commits resources to achieve this. There is extensive planning and forecasting for growth, and management staff are employed with an eye to the future rather than to meet the immediate current position of the company. 

Take Off Stage — Letting go of the Reigns The company’s growth is significant, with primary concerns being delegation, cashflow and planning to cope with the exponential growth. This is a pivotal point in the company’s life, as the owner will be out of their comfort zone with many decisions having to be made by front line staff. 

These decisions will, of course, never be quite the same as if the owner was making them. However, that is a cost of growth and must be factored in. This is part of the breakthrough. If the owner cannot accept or get beyond this phase then they will retreat back to their comfort zone and consequently stifle the growth of the operation. 

Maturity Stage — A Corporate Model At this stage profit is based upon process and not necessarily identities or personalities. The business operation will be detailed and structured with a clear strategic plan and direction. Management of the business will be by delegation with full accountability. Should the company not be successful in delegating, grow too fast or not be able to keep sufficient volumes up to support the infrastructure, then the possibility is there to slip back to an earlier growth stage. 

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