NEW THINKING about the contracting business
Sep 1, 1998 12:00 PM,
Books on business and marketing are usually written for the largestreadership possible for a variety of reasons. Authors try to find the mostfundamental principles underlying their subject, and the more fundamentalthe principles, the wider their scope of application. Also, authors hopefor the widest circle of readers. If you have a shelf full of books forbusinesspeople and entrepreneurs, you may have been disappointed at howmuch space is devoted to manufacturing or retail, having no application tocontracted installation and service. You may also have been disappointed byauthors who seem to have no real-world experience at what they write. Thecontracting business, like other businesses, looks quite different from theoutside than it does from the inside.
Here at last is an installation contractor writing a tell-all book aboutthe business. His company’s specialty was security system installation, butwhat he writes is valid for sound system installers, residential systeminstallers and many others. It’s valid not in a general way, butspecifically and in detail. As the author writes in the foreword, “Thisbook is not theoretical. It’s not speculative or hypothetical. It was notdeveloped by a CPA or an academician [nor] by an executive who spentdecades with Coca-Cola [or] General Motors.” It was written by a man whoran a large contracting company, Glen Industrial Communications, which 10years ago came close to going bust. In turning the company around andadopting a new business philosophy, the author re-thought everything heassumed he knew about business and discovered much of it was wrong.
The book begins with basic formulas for success. These add up to littlemore than leadership, plain and simple. Trouble is, leadership is seldomplain and never simple. “Grow or you will die.” Keep your company growing,not simply to pay you more profits, but for solid business reasons. As yourcompany grows, your employees have more opportunities for advancement. Thishelps keep them working for you rather than starting competing companies.Also, remember that your customers are growing, and your market (the numberof potential customers) is growing with them. If you aren’t growing tomatch, you’re losing market share and creating openings for competitors.
Another of Kruglak’s principles for success is to have a corporate missionstatement. One way to test the leadership in an organization or institutionis to go around and ask everyone, “What business are we in, and what is ourformula for success?” If you receive consistent answers from everyone fromthe vice presidents to the janitors, you are in an organization with strongleadership. If you get multiple answers (or no answers), the organizationmay be well managed but lacking leadership.
Another important principle is to consider customers as long-terminvestments. Some contractors think the project is finished when thecustomer’s check clears the bank. This author offers the philosophy that aproject is not completed until the same customer has hired you for his nextproject. Then, of course, it becomes another project.
A vitally important principle is understanding the costs of doing business.If you cannot accurately estimate the labor and materials to be needed onthe job, your bids will bankrupt you, or you will add such a large fudgefactor that your bids will be too high. You must know your costs ofinstalling projects, as well as your overhead.
Another principle for success is willingness to delegate. Your business canget only so big if you insist on doing everything yourself. To get bigger,you must allow your employees to act as the situation may demand.
A group of nine chapters takes up the subject of sales. Should you havesales territories or not? If it becomes necessary to divide territories,how do you go about it? Should there be a cap on annual sales commission?Here’s another way to ask this last question: What do you do when the acesalesperson makes more money than anyone else in the company, including thepresident?
Philosophically, there are two types of sales, and salespeople tend to haveone of two temperaments. New business is expensive to get; it will usuallybe obtained only with competitive bidding and thus tends to have smallermargins. New business usually takes the form of larger projects. Repeatbusiness is easier to get and will often be for smaller projects, such assystem add-ons or customer relocation. If the customer is comfortable doingbusiness with you, repeat business often won’t be offered for bid, and willhave higher margins.
Some salespeople, by temperament, are big-game hunters. They arecomfortable in a fluid situation, making instant rapport with strangers,generating their own leads and making cold calls. They are also probablyimpatient dealing with sales paperwork and with small, repeat jobs. Othersalespeople, by contrast, prefer a more structured environment, a smallercast of characters to deal with. They want to build relationships over timeand harvest the benefits. They are farmers, not hunters.
Which do you want, hunters or farmers? That’s like asking if you want newbusiness or repeat business? Obviously you need both. You need hunterswho’ll bring in new business and farmers who’ll manage repeat business. Youmust compensate them differently.
The next section of the book contains five chapters on the art of theproposal. If you are hunting a corporate client, many executives anddepartments will be involved in the purchase. For most of them, the onlyway you can address them is via a written proposal. There are few foolprooftechniques for the proposal, but these deserve careful attention. Use thebest technology for generating the proposal. Here’s another importantprinciple: The proposal should appeal to the customer’s vanity, not yours.Instead of filling the cover with your contracting company name and logo,it is the customer’s name that should be in big type. The body of theproposal should be short and in plain English; technical details andlegalese should be banished to appendices. The proposal, as a whole, shouldform a complete, binding contract, and the customer’s purchase order shouldreference your proposal (“…as described in vendor’s proposal dated…”).Include a table of contents, index tabs and an index at the end.
Two chapters on the marketing plan debunk the value of voluminous plansgenerated by outside consultants. Your marketing plan should be short andsweet. It should identify those potential customers you most want to workfor; it should identify those you least want to work for; it shouldindicate how to choose among others. A brief rationale should be given ineach case. Review every possible marketing vehicle, from your corporatebrochure to purchased prospect lists to direct mail to a customernewsletter to trade shows to holiday cards and novelty trinkets to a golftournament. Kruglak describes each of these marketing devices and more indetail with budgets.
A section of six chapters describes service programs. Kruglak uses”‘service program” in both meanings: the quality of service you give allinstallation clients, and the extended, on-site service you offer as anoptional contractual benefit. Here, he cutsright to an institutionalweakness of far too many contractors today.
Private airplane pilots have a phrase: graveyard spiral. New pilots, justadvanced from visual flight rules to instrument flight rules, are permittedto fly on inclement days when they can see neither the horizon nor theground. A few of them are killed attempting to take off or land in zerovisibility. More are killed months after being licensed for IFR. Theirsense of balance tells them they are flying straight and level, so theyneglect the instruments. In fact, they are flying in a huge circle, losingaltitude each time around until they crash into the treetops.
The contracting industry has a graveyard spiral. Its logic goes somethinglike, “…I don’t give my customers a high level of service because-I can’tafford to pay for it-my customers won’t pay for it-my competitors don’tgive it-I don’t give my customers a high level of service-because I can’tafford to pay for it…”
Your service department can be the Cinderella of your company. Instead of adrudge and dirty necessity that drains your profits, it can become thehighest margin, highest profit part of your company. Here’s the first step:Forget levels of service and offer only the best service program.
Three chapters on personnel management show the importance of common sense,a quality becoming increasingly uncommon today. Here’s an example. Do youhave key people in your organization whose incapacity or loss would disruptoperations? Of course you do. Do your key people have designated assistantswho are learning the ropes, privy to decisions and reasons, performing forthe key people during vacations or sick time, ready to take over if needbe? Of course you don’t. You’re reluctant to hire a new cohort of employeesand create a new layer of management? There’s no need. Designate anexisting subordinate as the assistant, and allow a little time forassistantship.
A chapter on hiring and firing puts this subject into perspective. Hireright, and you’ll fire less often, and then for bulletproof reasons. Howmany of your employees have signed an agreement protecting your corporatesecrets? None? How many have signed a limited non-compete agreement? Well,it serves you right when one quits and takes away a bunch of your clientsand the know-how to compete with you. This reviewer, writing these words,can hear the groans of a thousand readers. You need the help of an attorneyin drafting corporate-secrets and non-competition agreements, and you needto know you’ll never enforce such an agreement against someone you fireinvoluntarily.
Five chapters on accounting and finance prove that knowledge is power.Today, accounting means software. An entire chapter is devoted to jobcosting, the Waterloo of companies undertaking a bigger-than-usual project.And overhead! Kruglak rightly calls this battle “controlling the beast fromwithin.” When drivers of company vehicles were expected to pay thedeductible for accidents they caused, fender benders magically dropped fromone or two a month to one or two per year. The company still paid thedeductible for virtually all of them, but with lower insurance ratesbecause of higher deductibles and with fewer accidents, they saved $110,000a year. And air courier charges! By asking, “So what’s wrong with producingdocuments in good time and using first-class mail?” Kruglak’s company saved$6,000 a year.
The last chapter is titled, “Getting started: crawl, walk and run.” It’s achecklist, living up to the subtitle “handbook.” It outlines what to do nowand what to set in motion now for future payoff. It applies to newly formedcompanies, to established companies in trouble (if you don’t know whetheryou’re in trouble or not, you’re in trouble), and to successful companieswanting to sharpen up their practices.
The Entrepreneur’s Handbook, Lessons from the Battlefield is anextraordinary book. It’s specific, practical and tangible. It recognizesthat you have a family and community life, your employees deserve to betreated decently, and your customers are more than sheep to be fleeced.S&VC gives this book its highest recommendation. It is to business books asSound System Engineering by Davis and Davis, The New Audio Cyclopedia byBallou, and Audio System Design and Engineering by Giddings are totechnical books.