Successful contractors are competitive. They have to be. It is the nature of the free enterprise system.

As much as that system is chastised for being unfair, if you take a look at the natural world around us, that’s the way that nature works. Animals are opportunistic, adaptable and risk takers. They do not survive without that. Humans are the same. Even in our “civilized” society.

So, who’s your competition? If you’re a fledgling business owner, who’s out there in your market that you’re going to compete with?

Who is your intended customer? How does your competition appear and appeal to them? How will you position yourself to be more appealing, yet still able to take a knock or two, pick yourself up and come back at it?

Jim Collins, author of Good to Great and other business classics, says that enduring businesses are committed to the discipline of a 20 mile march every day. Not a couple times of a week, but every single day. So stamina, determination and grit are the key traits that go along with the daily practice of Build, Observe, Learn and Adapt.

So, speaking from first-hand experience, without analyzing your competition combined with being naïve about the business of contracting, that path leads to failure. Or “learning experiences” as we like to call them.

When I got my contractor’s license and started my first business, I was 27 years old and had been swinging a hammer for 10 years. I had been a lead carpenter on a custom framing crew and had a good system. I thought I knew what I was doing.

I was a babe in the woods.

I figured that since I’d been framing houses for the previous 6 years that I should become a framing contractor.  That was my business plan. While I was a good framer of custom homes, I had no clue as to what the competitive world of being a framing contractor was like, especially during the tough times of the early 1980s when interest rates were 16% to 20%.

I was bidding framing jobs to general contractors. In turn they were bidding against other general contractors in order to win contracts to build architect-designed custom homes for high net worth individuals. The architects were in charge of the bid process and were the link to the clients. 

The clients believed that the plans and specs made for an even playing field. The architects did not dissuade them of that belief. And of course, the architect knows that changes will happen due to discrepancies. After all, it is a custom home that’s never been built before.

But the architect’s agenda is different than the clients. The clients want a place to live. The architect wants to add to their professional portfolio of completed projects.

So, the temptation then was to get a project underway, even if it was underpriced with several upcoming surprises on the horizon. Because what’s the client going to do? Quit building their home 80% of the way through?

So many architects didn’t want to own the fact that their plans are incomplete… but that’s a different chapter. 

It was a stupid system. For a GC to get a job, low bid wins. Therefore, they had to use the lowest bid trades.

That was the business model at the time. And the low bid model is still the prevalent way of awarding work. And it’s still stupid. There are better ways, but I won’t digress right now as that’s yet again another chapter.

Many of my competitors were great guys. A lot of street smarts. And many were motivated by two things. Unbridled pride. And fear.

Out of pride, they believed they could frame anything. And because of the economy, they were fearful of running out of work. And that meant running out of cash to live on.

So pride leads to being unstoppable. This is counterbalanced by fear of running out of cash. The two factors combine to lowering prices every time you lost a job to someone else.

Back in the day, many of the guys bid framing houses by the square foot. So if $4.00 a square foot didn’t win the contract, then try $3.75 a square foot next time. If that didn’t work, try $3.65 the time after that.

I couldn’t see the logic in that. These were complicated homes, not tract houses. There was a lot of exposed beam work. Seismic hardware was just beginning to be added into the engineering.

With my background in estimating, and knowing that carpenters can move so many board feet per hour and install so many pieces of hardware in a day, I invested a lot of time and did detailed lumber takeoffs. My contract win rate was 1 out 10.

So on one hand, those estimates were a waste of time. On the other hand, they became over time clues to the insanity of the business I was cutting my teeth on.

Of course I didn’t make money on the jobs I did get because I had started to chase the pricing wars on their downward spiral. So, while I knew the bid price didn’t make sense, I submitted low bids anyway, thinking that if other guys are somehow making a living at that price, I should be able to as well.

What I didn’t know is that many of my competitors didn’t play by the rules. I know. Shocking, right? Like I said, I was a babe in the woods.

Some paid their crews in cash.  Others paid piecework. They took their cut off the top and told the crews what the piecework rates were. Therefore they still got a percentage of the contract and didn’t lose money. If their guys worked for peanuts, it was all a part of the tough times.

Me? My first two big framing contracts were for a 5 unit condominium complex and a 6000 square foot house. I lost money on both of them.

My lowest paid guy got paid a lot more than I did. Oh, of course, he grumbled incessantly about his pay rate, but his net income was positive. Mine was not.

So imagine what it feels like… A young, newlywed, carpenter-contractor with no capital and you are in the hole by $10,000.00?
You paid your guys. You paid the IRS. You took enough out to eat rice and beans. Your business has no track record. Therefore you’re not creditworthy enough to obtain a loan from a bank. So, who’s left? Your vendors.

My parents raised me to own my mistakes.  No one in our family filed for unemployment. When times were tough, you were supposed to figure it out. 

Those values were further developed at our extended family’s BBQs over many years. My grandfather had started an equipment rental business in 1930. He sold it to my uncle in 1957, who then sold to his son in 1990. So it was three generation family business.

Standing by the family BBQ, as the tri-tips were sizzling on the grill, I often would hear about contractors and developers who stiffed their vendors or offered 50 cents on the dollar. Yet, I also heard about others who lived up to their word, even when times were bad. Those builders recognized the value of long term relationships and that you don’t stiff your trade partners. I could hear the respect for them in the voices of my relatives.

So with our family’s values, it was “own up, pay up and get on with it.” There is no stiffing of vendors.  I knew I would have to work it out.

I set up face-to-face meetings with the owners of the two lumber companies in town. I explained the situation I had got myself into. I owned up to what I did. I asked them to not lien the properties. I told them that I would pay them off over the next 12 months on a bi-weekly basis. That I would keep them informed as to how I was doing. That I wasn’t asking for any discounts or writes off. That I would pay them in full and I was determined to get this behind us all.

To their credit, both these gentlemen agreed. Of course, that might have been a better deal for them than to pay a lawyer to attach a lien on someone’s property and go through the legal process of trying to collect. At any rate, I was true to my word, kept in touch bi-weekly and got them paid off in 9 months.

Thankfully, my wife hung in there with me while we lived as cheaply as we could.  It turns out that hunger is a strong motivator.

So, who’s your competition?

Do you know the   unwritten “rules” of the game?

What’s plan B if plan A doesn’t go well?

While perseverance and persistence are virtues, how long are you willing to bang your head against the wall?

If you discover that there’s no money in the niche that you’re in, how will you adapt?

What strengths do you have that your competitors don’t?

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Find out more at Play to Your Strengths.