By {{Article.AuthorName}} | {{Article.PublicationDate.slice(6, -2) | date:'EEEE, MMMM d, y'}}
{{TotalFavorites}} Favorite{{TotalFavorites>1? 's' : ''}}
Building Your Business Without Breaking the Company’s Back

How does a company grow from nearly nothing into something big? For some businesses, it happens gradually. For others, a shift might happen in a matter of weeks. Either way, the best way to deal with a growth spurt is to be ready for it.

With the national economy poised to take off in 2015, many small to medium-sized construction firms will be looking to increase their volume of work, explore new markets, increase staff and grow their business models to make more profit. However, as many company leaders can attest, growth must happen wisely and intentionally. No one wants to make the mistake of overextending their finances and capacity—a trap a few executives will admit they fell into during certain boom periods of the 1990s and mid-2000s, and then found themselves in trouble when the good fortune dried up.  

Construction Executive picked the brains of three medium-sized firms in different geographic locations to talk about best practices for contractors to grow responsibly amid the economic turnaround, challenges when expanding into new market sectors and building types, strategies for adding more employees, and ways to make stronger professional connections in the industry.  

Being Both Tenacious and Cautious
Red Hawk Contracting Company, Inc., San Antonio, Texas, is one example of a commercial construction company that started almost overnight. Partners Desi Valdez, president, and Shelley Delgado, vice president, had known each other professionally since the 1980s, both attending Texas A&M University in the construction science program. Following graduation, Valdez worked for a general contractor, and Delgado worked for a waterproofing subcontractor, and the two had the chance to pair up on several jobs over a 13-year period. After Valdez parted with his employer in 2007, he decided it was time to branch out on his own.

“It was a Monday when I made the decision. I called Shelley and got her interest piqued,” Valdez says. “She didn’t sleep well that night, and she called Red Hawkme back the next day, a Tuesday, and we sat down at the office to talk about it. Wednesday was the 4th of July, and we met with our families. I started talking about ideas with my brother-in-law, who is a CPA. That evening, I applied for a corporation name. On Thursday, I called Shelley and said, ‘We are in business. We just started Red Hawk Contracting.’”

“Surprise!” Delgado jokes.

They named the company for a red-tailed hawk they spotted on a neighbor’s car while they were meeting to develop their early logo and marketing plan. As the story goes, the hawk appeared to be inquisitive about his own reflection, only to fly off and return daily for the next three days. “Like the red-tailed hawk, we are tenacious, bold and passionate about our purpose,” Valdez says.

Since first starting their own design-build company, Valdez has focused more on finding new business and interfacing with clients, while Delgado handles the behind-the-scenes work it takes to make a business succeed; namely, the accounting and human resources functions.

The balance has worked well for them, and Red Hawk Contracting is in the middle of a significant growth spurt. It grew from a $5 million company in 2013 to a $10 million company in 2014. At year’s end, it was breaking ground on five projects.

“Three of these projects are for new clients, so we will need to focus on strengthening these new relationships,” Valdez says. “Recently, we have not focused as hard on new clients as we had in the past, but soon that will change as we try to increase our backlog for the second half of 2015. Our repeat business is good, and we want to keep it that way.”

The main challenge of growing the company has been convincing owners and architects to give a newer player like Red Hawk Contracting a shot, he says. In addition, as a young company, it’s important to maintain the right amount of capital to sustain future highs and lows—and to neither panic nor get too optimistic.

“Growing a company responsibly is essential because it allows ownership and management to focus on client development instead of crisis management,” Valdez says.

Narrowing the Focus
M.W. Mielke, a family-owned and operated mechanical contractor based in Medina, Ohio, opened in 1981. Business grew gradually until the late 1990s, when now president David Mielke graduated from college and joined the leadership team. Growth then happened rapidly in the early 2000s—too rapidly, he says.

“We went on a mini growth spurt for five years until 2005,” Mielke says. “We actually grew too fast, and we lost organizational control. We saw failures start to happen in our operations. Financially, we were doing three times as much work, but not making money. That caused us to call a time-out. We decided to double back and get our foundation shored up before we moved forward with more growth.

“We said, ‘We’re going to change some things about our culture, and then when the timing is right, we’ll move forward again,’” he says.

To get back oM.W. Mielken track, M.W. Mielke reduced its volume by 25 percent and narrowed its focus to become better known for what it was most talented at building: specialty piping systems within plumbing, HVAC and industrial projects. “We hold a niche so we can minimize competition and concentrate on our specialization,” Mielke says. “We’ve begun to focus on projects that might be considered more complicated, such as federal work or health care work. We like to think of ourselves as a smart and sophisticated company, and we want to excel at being in environments that take more finesse.”

Recently, the company was the only nonunion contractor on a major historical redevelopment project in downtown Cleveland: a luxury hotel and condo project called The 9, which opened in September to buzz among convention and sports enthusiasts. 

Since its reevaluation period, the company has nearly tripled its growth during the last seven years. “It has been a gradual upswing with some spikes along the way,” Mielke says. “I’m proud that we were able to maintain growth and profitability through the entire recession. I’m sure the things we did to shore up have helped us succeed when times were tough.”

Cultivating Trust
Marpac Construction, LLC, Seattle, a commercial contractor founded in 1995 that specializes in mixed-use construction, was not immune to the economic crash, despite strong demands for housing throughout the recession. The company rode out the downturn by diversifying its project mix into government and nonprofit work, while maintaining positive relationships with its previous clients so that it would be top-of-mind for smaller jobs.

“Our business is about putting people first,” says Sai Chaleunphonh, one of five Marpac partners who focuses on building client relationships while managing field personnel and IT operations. “Our business is more about service than product. We cultivate relationships and trust, and we’re all about return business. For example, if the owner wants us to build their boat dock, we’re going to do it, even though we usually build mid-rise complexes.”

MarpacNow, with another mixed-use housing boom on the horizon, Marpac Construction is looking to double its volume next year from where it was two years ago.

“With that, we’re looking to diversify outside of mixed-use as other markets follow suit—grocery stores, health care facilities and offices. And we’re going to stay local because that’s what we know. We believe that construction, especially on the subcontractor and supplier side, is relationship based. Through experience, we know what they can do; we know their deliveries and their products,” Chaleunphonh says.

Now under construction is a $14 million job called Hirabayashi, a mixed-use development that will result in six stories of new residential units as well as child care space. The firm is also working on Publix + Warehouse, a six-story demolition and renovation of a historical hotel property in Seattle’s International District. Marpac also recently completed the Lexicon Apartments, which consist of seven stories of market-rate apartments with two levels of underground parking.

“For us, the key to growing responsibly is the ability to deliver a consistent product,” Chaleunphonh says. “Right now the demand is outpacing the supply, meaning there’s a shortage of materials and skilled labor. All of that has an effect on delivery time and quality, and the availability of skilled people.

“In the economic boom, if we take on all this work and then we can’t deliver a consistent product, the client is not going to call us again,” he says.

Growing Teams at the Right Pace
Human resources will be the top challenge for all construction companies in the years ahead, especially those that foresee doubling their volume in 2015.

Marpac now has 35 people on staff and is looking to grow to 50 employees in the next year. With an influx of new jobs, the company needs to hire just about everyone: superintendents, foremen, carpenters and laborers.

With an overwhelming demand for skilled workers, companies are leveraging all the resources they can. Specifically, Marpac is tapping into professional apprenticeship and training resources provided through its membership in Associated Builders and Contractors (ABC), recruiting at job fairs at the University of Washington, as well as participating in events such as Youth Build that target a young audience.

A thorough onboarding and training process becomes especially important when adding staff at a rapid pace. Many company leaders fear that after they bring on several people to meet their needs for a new job, those employees may not be the right fit for the company in the long term.

For example, Red Hawk Contracting is looking to hire up to three superintendents in the San Antonio area, but will be careful not to let a poor cultural fit become a problem.

“We will focus heavily on training these individuals to understand our company’s philosophy,” Valdez says. “We’re looking for people with the right skill set to resolve project issues in a way that protects the company financially but doesn’t destroy a bridge with a client.”

For M.W. Mielke, staying on top of hiring needs meant hiring a full-time staff member dedicated solely to workforce development two years ago. “We thought of it as a strategic investment, even if it meant a temporary reduction in our profits,” Mielke says. “Despite the negative spin on the labor shortage, I think there are lots of good people out there now. But attracting them, getting them on the team and keeping them in the industry—those will be the most difficult things to do. I think your mindset dictates your success in that what you seek you will find. If you think there are no good people out there, then you’re probably not going to find them.”

The investment did pay off when the company was challenged to execute a $15 million, 10-month job that required 70 craftworkers on the jobsite. Before the project began, M.W. Mielke’s largest projects were half this size, meaning the company would have been in bad shape if it hadn’t concentrated on its workforce development needs ahead of time.

In addition to having an ideal number of new hires, Mielke advises small business owners, especially those that are run by just a few family members, to let go of the reins a bit and allow other leaders to make decisions on their own. “Don’t become the bottleneck. If you have the right people, you can let go and allow your key employees to learn and grow. They have to be able to make mistakes; just give them safe boundaries so the mistakes aren’t catastrophic. For some companies, an unwillingness to release control has been a limiting factor to growth.”

Leveraging Relationships and Keeping an Eye on Cash Flow

When looking to grow a smaller company, it’s important to remember that relationships build more relationships.

“This is true not just with clients, but also strategic partners, Mielke says. “By hooking up with other contractors and vendors that we know are plugged into certain markets, we can pair with them and ride their coattails. It’s so much easier to go in the back door than the front door.”

By leveraging its membership in ABC and getting involved in the association’s Peer Groups, M.W. Mielke has connections throughout the country. It has performed work in 20 states and most recently the U.S. Virgin Islands.

In addition, strong relationships with banks, insurance and surety companies, and legal firms are essential for seeking advice, especially when a growing company finds itself in a difficult situation—whether financial or performance-based.

The next biggest challenge, beyond workforce needs, is cash flow.

“Because there is such a demand for resources, people expect to get paid sooner,” Chaleunphonh says. “They want a deposit upfront. If you miss the 30-day window, you better believe the subs will be calling you because they have projects and payroll expenses they have to meet.”

Mielke agrees. “Using the economic recovery to grow your business is a dangerous thing to do. In my experience, we grew but we weren’t prepared for that growth. When you’re riding that wave, you better make darn sure you’re prepared and that you have the resources in place to manage it. It’s a pretty fine line between being in control and being out of control. Once you’re out of control, bad things can happen.

“From the surety end, our bonding agent says now is the time when people might go out of business because they’re coming out of leaner times. Contractors may have made it through the recession, but they have had to downsize. They haven’t made a lot of money for a couple of years, and so their cash supply is short. When you ramp up, one of the first things that happens is cash gets strained because of the lag between project completion and when you’re getting paid. You can get yourself in trouble in the short term financially.”

But by keeping overhead low, only hiring when necessary and always staying in front of potential clients, a growing company will have a better chance of maintaining profitability while gaining new project opportunities, Valdez says. 

Chaleunphonh maintains the key to success is to grow in increments. “If you grow too fast, you’re going to affect your product. You need to have the workforce in place, and then you have to be able to provide the product that you’re advertising to clients.”

In other words: aim high, don’t overpromise and always over-deliver.

Lauren Pinch is a contributing writer for Construction Executive. For more information, email pinch@abc.org, visit www.constructionexec.com or follow @ConstructionMag.

 Comments ({{Comments.length}})

  • {{comment.Name}}


    {{comment.DateCreated.slice(6, -2) | date: 'MMM d, y h:mm:ss a'}}

Leave a comment

Required! Not valid email!