About six years ago, M.W. Mielke, Inc., Medina, Ohio, decided to abandon its focus on low-bid public projects and seize an opportunity in the industrial market. It was quite a departure for the company, which had specialized in commercial plumbing, HVAC and fire protection work since current president David Mielke’s grandfather and father started out in the early 1980s, but the move is paying off.
Today, M.W. Mielke employs 80 people and performs 70 percent industrial work and 30 percent commercial work across the United States.
"We didn’t feel the margins we were making were worth the risk," Mielke says of the firm’s public work. "We’ve found with industrial customers that our work affects their production, which gives us the option to sell on overall value versus upfront cost. We’ve really increased our bottom line. We’re doing fewer sales and making more money."
While growing profits is a major goal of every construction company, determining how best to develop a business requires a healthy dose of both strategy and risk. The following insight from contractors explores how to move onward and upward in the construction industry—even in this tough economic environment—by diversifying markets and services, leveraging relationships and supporting personnel.
Diversification and Expansion
With its new industrial focus, M.W. Mielke began exploring geographical markets outside Ohio. The firm participated in a multi-year industrial project in Louisiana that allowed it to develop a local workforce and relationships with local vendors. But when the project ended about five years ago, so did the company’s presence in the state.
"We missed an opportunity to make that location more permanent," Mielke says. "We decided that as this happened in the future, we would capitalize on it and use it as a springboard to open branch offices."
Mielke stayed true to his word as the company embarked on work in North Carolina. He carefully analyzed the market’s stability and, earlier this year, opened the company’s first branch office in Raleigh.
Suffolk Construction, founded in Boston in 1982, broke out of its regional comfort zone by following a client to Florida to build assisted living facilities. That led to work on the 10-story Medical Mall in Palm Beach Gardens, Fla., and in 1994 Suffolk opened its Florida division in West Palm Beach. Seeking to go beyond the assisted living market, Suffolk hired Rex Kirby as president and general manager of the Florida division in 1999.
"After spending some time in Florida, they started to understand the differences from the Northeast market and wanted someone with Florida experience," says Kirby, who’s a native of the state. "Early on we did about $60 million in revenues with 65 to 70 people in the office and an average job size of about $7 million."
Today, the Florida division has two additional offices in Miami and Sarasota, employs 255 people and is performing about $356 million for fiscal year 2008. As a whole, Suffolk will perform about $1.5 billion of work this year—up from $500 million when Kirby came on board less than 10 years ago. The firm has expanded its portfolio to include the automotive, bioscience, institutional, commercial, public works and residential sectors.
According to Kirby, a diversified work portfolio has paid off in Florida.
"We built condos but didn’t just ride that gravy train," he says. "We split into five sectors so when the condo work stopped, we had enough work spread out so that we didn’t disappear."
One of the areas in which Kirby sought to build a reputation was K–12 schools—a market that now comprises 30 percent of the Florida division’s work.
More Than MarketsDiversification doesn’t just mean building many different types of projects. Leadership and services come into play, too.
When the buzz surrounding design-build began increasing about eight years ago, M.W. Mielke hired in-house licensed engineers so the subcontractor could serve as a one-stop shop for various small and medium-sized projects.
"It gives us the technical capabilities our competitors don’t have," Mielke says. "Especially with new customers, we’ve found that our technical knowledge and the fact that we do plumbing, HVAC, fire protection and heavy industrial work helps us get our foot in the door."
SIGAL Construction Corporation, a 31-year-old commercial and institutional contractor in Arlington, Va., also has diversified both its markets and services. It started as a specialist in tenant interiors and slowly added the base building market to its repertoire. SIGAL entered the federal government sector amid a struggling economy in the early 1990s, and now the 150-person company is turning to school construction.
"The challenge is always to define where the market growth is and where it’s slowing down so you can re-orient your marketing efforts in the right direction," says Gerard Heiber, executive vice president in charge of SIGAL’s base building operations. "You’re always aiming to keep your backlog healthy."
In addition to maintaining its backlog, SIGAL had the fortitude to get involved with a trend that would eventually take the construction industry by storm: green building. The firm performed a few green build-outs for environmentally oriented associations more than 15 years ago and saw it as a promising business development opportunity.
"We helped start a committee under ASTM International to come up with a definition of green building," Heiber says. "We came up with the idea of creating a rating system. It was very hard to get consensus, so we broke off from ASTM and formed the U.S. Green Building Council, where we further developed the rating system to the point when the U.S. Department of Energy did a pilot project."
Heiber is pleased with the progress of the LEED rating system.
"The emphasis was to push the market and that has happened from a manufacturing standpoint," he says. "Manufacturers have focused on being more environmentally friendly, and it’s becoming easier to get certifications."
By taking a chance on an undeveloped idea, SIGAL effectively repositioned itself as a leader in the green building market in less than 10 years. It even changed its traditional burgundy logo to green to reflect its commitment to sustainability, as well as renovated its new corporate office to meet LEED Silver standards.
Courting Customers
Heiber, Kirby and Mielke agree that a company has to cultivate relationships in order to capitalize on business development goals.
"We’re always talking to building owners and architects and attending real estate functions,” Heiber says. “We have several dedicated people who do this on a daily basis, but we also have senior-level people who are active in the marketplace and go to meetings and functions. It’s not easy to do after working a whole day, but it’s an important part of your marketing efforts."
Though M.W. Mielke doesn’t have a formal sales or business development position within the company, it acquires most of its work by leveraging relationships and forming strategic partnerships with other contractors. The company identifies reputable contractors that complement its business philosophy, and asks for help passing along M.W. Mielke’s name when opportunities arise (and M.W. Mielke reciprocates).
The company currently partners with about five contractors—one of which is responsible for introducing customers that now account for one-third of M.W. Mielke’s overall sales volume. Although the company registers fewer sales than eight years ago, Mielke is satisfied that a more diverse customer base has replaced the 70 percent of sales that previously came from looking at Dodge Reports—a change that should show up on the company’s sales line in the next five to 10 years, he says.
The only downside to this approach is when a project puts M.W. Mielke at odds with one of its strategic partners. "This has put us in a position where we had to do something not in our best interest in the short term to protect that relationship," Mielke says.
That fierce dedication extends to Mielke’s clients as well. "We go out of our way to do unreasonable things for our customers," he says. "We put their best interests ahead of our own in the short term, and our customers are loyal because of it."
Valued Employees
For a construction business to maintain growth, it must show this same level of enthusiasm and commitment to its internal customers: employees.
"The people who work in our company are driven, they are passionate about the business and they want to make sure they’re turning out the best product," Kirby says. "That’s who we are and the type of people we want to attract."
Suffolk decided to make training a formal part of its core values during a strategic planning period several years ago. It created an employee development program called Red & Blue University that requires every staff member to learn standard operating procedures, as well as offers courses in safety, construction management and personnel management.
Additionally, about five years ago Suffolk organized the Career Start program, which allows interns to spend eight months each in project management, field and estimating roles. A senior advisor provides career guidance and maintains a list of skills an intern is expected to learn. After two years, the intern decides which area of the company provides the best fit for his or her career goals.
"By providing training and putting together individual development plans, that’s how we see ourselves growing in the future," Kirby says.
Mielke recognizes his biggest growth challenge stems from finding and training qualified employees, particularly because, as a smaller contractor, he can’t entice workers with above-market salaries. His solution to an urgent need for skilled employees was to create an accelerated in-house training program with the help of the National Center for Construction Education and Research. Pipefitting apprentices attend a nine-hour class each week for about 18 months. For the remainder of the two-and-a-half year program, apprentices study plumbing, HVAC and industrial maintenance curricula that pertain to M.W. Mielke’s business.
"They are some of our best field employees," Mielke says of the first batch of graduates. "We’ve been able to get those employees into a productive place in two years instead of five.”
For each level completed, apprentices receive a pay raise based on attendance and overall grade point average.
Mielke’s commitment to his employees extends to the company’s succession plan. Within 10 years, he’d like to see M.W. Mielke transition from a family-owned operation to an employee-owned company.
"We have a lot of extremely dedicated people. I do one job here and 79 other people make us successful. I want to put our money where our mouth is."
What does a succession plan look like? What innovative training programs are out there? Have new marketing practices proven effective?
When it’s time to consider these big-picture questions, many contractors turn to a trusted resource: their peers.
Asociated Builders and Contractors’ (ABC) peer group program allows similar, non-competing contractors to discuss business issues and collectively solve problems in an open environment.
"Those of us in this business sometimes feel isolated because the people you know compete with you, so you can’t discuss critical things you need help with," says Andrew Coull, whose Maynard, Mass.-based construction management firm helped form a peer group more than two years ago. "Other than hiring an outside consultant, which has real-world limitations, we couldn’t see a better way to exchange best practices and ideas and discuss common problems than with companies that are doing the same thing we do, but don’t compete with us."
Coull’s six-member group adheres to a confidentiality agreement so participants can disclose financials and speak openly about personnel issues.
"A lot of the financial information has been beneficial," he says. "Insurance issues have been discussed and we’ve beefed up some of our insurance provisions as a result. We’ve also modified our company’s construction contract to incorporate some language that came from some of the other firms.
"A lot of what we’ve gained has to do with learning that the problems we experience are not unique to us."
Dave Spencer, president of S. David & Co., Inc., Jacksonville, Fla., is in a group with 10 other painting companies from across the United States. His group tackles everything from estimating to compensation packages, accounting procedures, succession planning and marketing.
"Being in business is an ongoing process," Spencer says. "To operate in a vacuum when you don’t have to is shortsighted. When you can have non-competing companies help, they become sort of like your ad hoc board of directors. They are people you come to know and respect who can tell you when you’re doing something wrong, which can be hard to hear from an employee."
As a result of participating in a peer group, Spencer says his 25-year-old company developed a better compensation and incentive program for its foremen that effectively motivates field supervisors. Additionally, Spencer simplified the firm’s change order tracking system based on other group members’ experiences.
"Last year was our best year margin-wise since we’ve been in business, and I would say it’s in great part due to the peer group," he says.
How a group functions is entirely up to its members. Spencer’s group holds three two-day meetings a year. Members take turns selecting an accessible site and organizing hotel and restaurant reservations.
Coull’s group meets twice a year, rotating among members’ hometowns. They arrive on Wednesday and meet all day Thursday and half of Friday. Participants are responsible for paying for their travel and lodging, and the next firm in line to host is in charge of the agenda.
For more information on joining or starting an ABC peer group, email peer@abc.org or visit www.abc.org/peergroups.