Reasons Why Construction Companies Fail

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Robison Wells

At the upcoming CONEXPO in Las Vegas in 2020, Larry Kokklenberg, PhD, will be presenting on the top ten reasons that construction businesses fail. Two thirds of these businesses fail within the first five year, and he says that most of the owners blame external sources, like insurance, taxes, or politics. But he’s identified ten things that businesses do to hamstring themselves. You can read the whole article at Daily Commercial News, but here are five of them.

Starting a Business for the Wrong Reason

Many home repair afficianados who may have acted as their own general contractor during the remodel of their house think that the work is easy, and that it’s a path toward easy wealth. They want to be their own boss, they want to get out from behind a desk, and they want to partner with a few friends. The problem, Kokklenberg says, is that no one gets rich quick in the construction industry.

Starting a Business in an Oversaturated Market

Starting a construction business should be like starting any other business: it should be based on a market need. If no one needs you in the market, then you’re going to have trouble finding customers and trouble gaining traction when there are already other time-tested competitors in your same area. Market research into the business is a must.

Poor Hiring

Kokklenberg cites an old saying “when you only hire a pair of hands, you never get a head.” It’s harder to find the right kind of employees than it is to find the right ones, especially in this time of a labor shortage, and when you find someone looking for a job in a market as desperate for skilled workers as this one, you have to ask why that person is looking for a job. They may just be down on their luck, but they may also be a problem employee, someone who was let go from a competitor for being difficult to work with. A bad employee means substandard work and bad morale.

Poor Company Culture

When there is a poor company culture, employees are much more willing to just punch the clock, get in and get out as quickly as possible, doing the least they can to get their paycheck. While it may be a knee jerk response to blame the employees for this—they’re not working as hard as they should—a lot of the blame can fall on poor leadership that fosters such bad feelings and hostile work environments.

Poor Financial Systems

Even in large companies, it’s hard to keep track of ingoing and outgoing money, and in a small business with a part-time (or even an owner-assigned) bookkeeping process, it may not be until the end of the year that the books get settled, and then the owner may be in for a rude awakening. Accounting software can help, but it can’t save a broken system. Good financial systems are a must.

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