Ten Factors to Consider Before Expanding a Construction Business

Why should a seasoned business want to expand? Is the backlog of work and future opportunities to grow and sustain a larger business truly there to justify it?

Ego and greed can inappropriately drive business growth when the primary focus is “fame and fortune.” Some contractors believe “the bigger the better” when often that is not the case. Bigger is just…bigger! Large companies can be more complicated and challenging to operate without the complementing bottom line. Many owners have regretted expanding a business when they find themselves longing for the days when they could handle the stress and were financially content.

Entrepreneurs tend to have an insatiable desire for quick, explosive growth and success. Of course when starting out at the bottom, growth is the only option. Fortunately, these hungry dreamers typically have built-in, formal protection from expanding too quickly: the outside investor or the bank. An entity willing to invest its capital on a start-up dissects business plans and demands detailed justification for each step of the growth process. These investors offer a heavy dose of conservatism that can be a critical factor for long-term success.

In the construction industry, business expansion often requires building projects located well outside of home base. Before expanding into a new geographic area, successful contractors will focus on three questions to mitigate risk:

1. Is the client they are working for new, or someone they have good experience with in the past?
2. Does the contractor have reasonable knowledge of and can they navigate in the new marketplace with local suppliers/trades?
3. Do they have experience in building the type of project that they are considering?

If any one of the three questions cannot be answered positively, a smart contractor will pass on this “opportunity to expand.”

In considering expanding one’s business, it is easy to get caught up in the excitement with an unhealthy level of optimism. Optimism can blind contractors from taking into consideration other less obvious factors in considering expansion such as:

1. Has the company conducted a comprehensive due diligence process or is it turning a blind eye to or downplaying an important variable, issue or concern?
2. Has the company allowed those who have a vote in the decision the freedom to share what they truly feel or are they just “going along with the majority”? Are all voices heard at the same volume?
3. Is there a reasonable level of both optimistic and pessimistic discussion allowed? Is healthy conflict and debate encouraged? Has everyone been asked to take on the “devil’s advocate” role at some point?
4. Will the company suffer from the stress of inadequate resources (leadership, employees, working capital, technology, equipment, etc.)? If things are wildly successful, what will be the bottleneck?
5. What if the company loses its top customer(s)? Is there a “Plan B”?
6. Would the lives of key employees’ families be negatively affected by this expansion?
7. Is there a group of trusted advisors or peers outside of the organization (and industry) who can challenge the logic of expanding the business?
8. What does the owner’s spouse think? Honor the fact that marriage is a journey of two and major decisions both inside and outside the home should be considered as a couple.
9. Would the majority of employees be in favor? Why might they be opposed?
10. What is the exit strategy? If things don’t go as hoped, what might this cost the company?

Ultimately, expand the business if it can be sustainable, enjoyable, rewarding and positive for all stakeholders!