The recent Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA) Convention in San Antonio was, as usual, very interesting and informative for attending contractors. What is always of interest to me at any gathering of contractors is the opportunity to exchange ideas and to hear what is happening in other parts of the country.
This year, in addition to the usual educational sessions, Dr. Thomas Schleifer, who frequently presents at SMACNA events, led the, “The Successful Contractor of the Future” session. Schleifer offered insight regarding the industry’s future and how to best prosper given the variables we face every day. The contrast between Dr. Schleifer’s presentation and the other educational sessions was intriguing.
Regarding workflow, the contractors I spoke with presented a very mixed bag. Those working in the South, especially in Texas, expressed a very busy summer season. Those headquartered in California and in western Washington echoed this sentiment, yet stated they are having extreme difficulty locating and hiring qualified workers.
In the East, contractors working in metropolitan areas indicated their workloads are strong.
On the flipside, Midwestern contractors, including those here in St. Louis, continue to experience considerable unemployment with very slow recovery in both the residential and commercial markets. Thus, it would be very difficult to paint a broad picture regarding the “average” business situation with contractors around the country.
When I discuss business activity with contractors, in virtually all cases, they express their impression based upon the amount of work they are performing or have on the books. In other words, they speak to the volume of work they have now or have coming and virtually never address the amount of profit they are making or will be making from the jobs they have coming in. Seldom is profit ever brought up in the conversation. A contractor may let out that he is not reaching the margins he would like, but that is about as far as he will go in addressing that question.
For that reason, Dr. Schleifer’s presentation was especially appropriate. At previous SMACNA conventions, he offered predictions regarding the amount of short- and long-term work that could be available to sheet metal contractors.
However, this year, Dr. Schleifer took a completely different approach and didn’t just make a prediction regarding the availability of work in the next few years. He asserted we will have another serious economic downturn in the very near future. In what is already a fragile industry, he pointed out that, in the cyclical nature of our business, contractors tend to make good money when times are good and essentially lose it all back when times are bad. He wanted the takeaway from his talk to be how we, as contractors, can continue to make money when times are good, but, instead of losing money in bad times, concentrate on making less profit. That way, at the end of the cycle, we are not back to zero, but hopefully are considerably ahead when considering net profitability.
Less Is More
Dr. Schleifer’s secret: take less work. This is completely contrary to what we have all thought in the past. His theory is that we take work in good times and grow overhead to perform the work, and, when work slows down, instead of cutting overhead quickly, we go out and look for jobs to increase our volume, which we feel is necessary to support overhead. The problem with that system is that very frequently that unusual or different job that we take just to cover that overhead turns into a major loser and steals away the profit we had earned before we took that job.
Dr. Schleifer’s premise is to not grow the fixed overhead portion of your business so that when that slowdown occurs, as it always has and always will, we are nimble enough to reduce our overhead in a matter of days, or less. If we have this flexibility, then we are not forced, nor tempted, to take those jobs that are out of our sweet spot and which invariably cost us money. In this case, his theory of bigger is not necessarily better really applies.
As a result, I believe at next year’s convention I will make my rounds asking contractors how much profit they are making, not how much work they are doing.
Publication date: 12/8/2014