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March 2018

Fail to Plan, Plan to Fail. Why Construction Business Planning Matters.
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construction business planning

Why construction business planning matters

 

You may have heard the saying, “Fail to plan, plan to fail” before. It’s a standby for business school instructors. The Boy Scouts say, “Be Prepared.” In the Army, we heard about the five Ps as in, “Prior Planning Prevents Piss-poor Performance.” No matter what old saying you use, it all amounts to “Plan ahead.”

Construction business planning isn’t hard, but it can make the difference between struggling to get your business going and starting strong. It’s comprised of several components. The more fully you can fill in the blanks of those components, the better off you’ll be in the long run.

Construction business planning definition

 

If you have done any research at all, you’ve probably heard about a business plan. Traditional business plans are a great way to develop complex business models. After researching and developing a full business plan, you’ll know a whole lot about your business. Just starting out in the construction, remodeling, and home maintenance/repair business doesn’t require this depth, however. In fact, a lot of the numbers you’ll come up with will be using the “WAG” method, as in Wild Ass Guess.

What you need is a high-level overview of your business. That doesn’t mean you won’t have to do a little research but you won’t need the detail required for a traditional business plan. Trust me, no bank is going to give you a loan unless you have enough money and collateral that you don’t really need it. Even if they would, you really should start off building your contracting business yourself.

Applying construction business planning

business model canvas

One of the best methods for high-level business planning is using the Business Model Canvas, an example of which is above. The canvas breaks your business down to the essential elements and shows how each relates to the others. If you want to dig deeper into the process, you can read Business Model Generation to get going and go to Strategyzer.com and sign up for a bunch of resources.

Now the creators of the canvas want you to have a poster-size canvas and write your ideas on colored post-it notes instead of on the canvas. That allows you to move things around to refine your idea. That’s helpful if you have the space to do it, which I never did. I use standard paper, have one sheet for each part of the canvas, and use colored pencils to segment ideas.

Let’s walk through the steps and I’ll explain what they mean and the questions you can ask yourself to fill them in.

Value Propositions

 

The short version is, “What service do you offer?” Think about what you can do to set yourself apart from the other guys as well. For instance:

  • What can you do while you’re already doing something? For example, washing the dirt off the outside of the gutters while you’re cleaning them. These things add value and add very little to overhead.
  • What extra things can you do while you’re doing something? To keep up the gutter example, think installing gutter guards at a slight discount to your normal price.
  • What are you (can you become) one of the best at doing? You’ll be seen as a better value if you are nailing it where others fall short. Listen to the things that your customers complain about and you’ll know what things to look at.

Customer Relationships

 

What are all the elements of the perfect customer relationship? Your business planning should name all the things you and they would do to make the relationship best for each of you. You’ll want to look at “Channels” and “Customer Segments” to see the different areas where things could go haywire and figure out how to improve your chances of success.

Channels

 

What are the ways you interact with your customers? Name all the ways you can deliver value to them. This involves everything from bidding/estimating through follow-up. Analyze each potential interaction and think about how you can increase real and perceived value.

One way to do this is to create a “customer touchpoint map.” This way you can clearly outline each point where you may interact with customers. Then your business planning will be able to nail down your approach to each of these things to make your customers even happier.

Customer Segments

 

Who are your customers? Try to be as specific as possible and think about your ideal. Don’t work for anyone who can pay the bill. Your business planning should build out all the characteristics of your perfect customer. Compile all the demographic information you can. On top of that, you’ll want to think about things outside the demographics that will affect your relationship with them or make them a more desirable customer.

Separate groups of customers by different key elements (income, family composition, etc.). You’ll need to think through the ways you’ll provide your value proposition to each group. Try to meet the needs of multiple segments whenever possible.

Revenue Streams

 

This area will outline every possible source of revenue you’ll have. Think about what your prices are going to be for different services. How much will you markup products and labor to cover your overhead expenses? What is the benefit to each “value-added” activity to your total revenue?

You should also think of other areas where you can gain revenue. Given the cost of leads, how much would it be worth to share leads with another person? For instance, if you are in hardscaping and you build a relationship with a landscaper, you can charge a fee for sharing the lead. If you commonly have too much work at certain periods, you can sell jobs to other contractors for a percentage.

There will be multiple ways you can expand revenue streams depending on how inventive you are. Ultimately, you want to maximize value to everyone you deal with. This by itself will increase your total revenue.

Key Activities

 

What are the things you’ll need to do to fulfill the promises you’ve made? List all of the different activities you’ll perform for each customer. Look over your customer touchpoint map and outline everything you need to do. The list is going to look something like:

  • Marketing
  • Sales
  • Job Performance
  • Customer Service
  • Follow-up

Your specific list will depend on how many things you’ve outlined for deliverables. This section and the “Key Resources” section will be very interdependent. That means for every activity you’ll need to list the resources to make them happen. Work back and forth until you have a full picture of everything that you’ll require to fulfill your “Value Proposition.”

Key Resources

 

What things are essential to delivering on your promises? Think about supplies and tools for this part. Outline every element that will be needed to deliver on all your value propositions. These elements will be the outline of the infrastructure you’re going to need to have in place. You want to think about your customer touchpoints and how you’ll exceed their expectations.

That means if you need to schedule work and estimates, you need a way to do so. What things do you need for a sales call? Are there specific items required to perform the work? How will you follow up with the customer? List every item you need for those things.

Key Partners

 

Who are the people who will help you get everything done? Can you do everything yourself? Early in your business, you may not have a choice but to wear many different hats. One key to contractor business planning is figuring out where you might increase value for yourself and your customers by outsourcing. As your business grows, you’ll want to build and foster partnerships with others so you can offload the things you aren’t as good at.

The other things you’ll list here are any suppliers and vendors from whom you’ll buy. Make sure you find people who are responsive to your calls no matter what the reason. Good relationships work two ways. You need prompt answers whether it’s for bidding, service, product defects, tool breakdowns, and so on. Just make sure that you aren’t always asking for rush service just because you don’t have your act together.

Cost Structure

 

Here is where you list all the costs associated with everything you’ll need. Make sure to add in maintenance costs as well as acquisition costs. Nothing sucks more than having something break down and realizing you haven’t budgeted for its replacement. There will be two kinds of costs listed, variable and fixed.

Fixed costs are rent, utilities, vehicle insurance and so on that happen every month no matter what happens. There will be very little variation in them from month to month. Variable costs will change depending on what you’re doing. These costs will include labor, liability insurance, fuel, and the like.

Over time you’ll find folks who will offer premium pricing, the ability to have credit accounts, and other perks. As long as the quality is good, gaining better pricing on the essentials increases your margins without hurting your reputation and overhead costs.

Processing your construction business planning

 

After you’ve finished filling out all the parts of the canvas, look it over carefully and make sure nothing has been missed. This is where using colors helps because you can see how everything relates to everything else. If you don’t have all of the same colors in every section, either you have something that needs to be eliminated or that you need to flesh out.

Now you have a complete picture of your business. From this information, you can see whether your plan will work or if you need to change things. That might mean you need to increase revenues, change or lower costs, or adjust workflows. Then you can put your plan into action.

The great thing about this method is that it’s much easier to adjust on the fly. If something about your business changes, just make the adjustment on your canvas or create a new canvas. Maybe you’re thinking about adding a service. You’ll be able to assess whether it makes sense for your business overall.

Now make a plan!

 

One of the great things about this industry is that contractors are almost always in demand. The customers are going to be there no matter where you are in the food chain. One of the challenges of the industry is that too many companies are lumped at the bottom scratching for scraps. You don’t want to be one of them.

Developing a plan is the first step to success. It forces you outside of your business so you can analyze it and make strategic decisions. Ultimately, your success will depend on your ability to look at your business dispassionately and make the decisions that need to be made. Construction business planning will make you a manager instead of a technician.

As I mentioned, you can get the business model canvas as well as a bunch of ways to analyze your business by signing up at Strategyzer.com. If you would like to have a Business Model Canvas, a Customer Touchpoint Map, and a Value-added worksheet, click here.