Self-Taught MBA: You Can't Be a Successful Builder Without Management Skills - Fine Homebuilding

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Building Business

Building Business


Self-Taught MBA: You Can't Be a Successful Builder Without Management Skills

comments (8) January 11th, 2012 in Blogs
FPR Fernando Pages Ruiz, contributor

 
One of the challenges of any company owner is to motivate employees, even if the company cannot offer benefit packages and great financial incentives. One perk I offered my employees that they always seemed to appreciate, was the opportunity to learn and take on new challenges, such as installing a panelized, ICF foundation on a demonstration house in Omaha, Neb., featured in the Fine Homebuilding article, “A Better Home Right Now.” Here is project superintendant Ron Caroll with plans in hand. 
 Click To Enlarge

 

One of the challenges of any company owner is to motivate employees, even if the company cannot offer benefit packages and great financial incentives. One perk I offered my employees that they always seemed to appreciate, was the opportunity to learn and take on new challenges, such as installing a panelized, ICF foundation on a demonstration house in Omaha, Neb., featured in the Fine Homebuilding article, “A Better Home Right Now.” Here is project superintendant Ron Caroll with plans in hand. 

 


If you've attended business school, you already know the answer to the pickle factory question. When the instructor asks the class, "What's the business of a pickle factory?" A student timidly responds with the obvious… "Making pickles?" "No!" thunders the instructor, "The business of a pickle factory is making money!"


Insight from more building professionals

Running the Company

Incorporating Best Practices

Building is Risky Business

Tailgate: Davide Crowe, Economist


 

I didn't go to business school. I came into the building business from a love carpentry-in other words, making pickles-making money was supposed to be the byproduct of being a good builder. And of course, on the whole it is. The pickle factory puzzle is a false teaching, just ask the late Apple co-founder, Steve Jobs, whose primary drive was making the best products in the world, and he built one the world's most successful companies in the process. But there's a valid point to the pickle puzzle, and builders who come to construction from backgrounds such as finance, real estate, or other ventures where the clear objective making money, often have a distinct advantage-they're interested in business. They read the Wall Street Journal, and they enjoy learning and discussing business strategies in the same way you and I may read Fine Homebuilding, talk about trimming and get goo-goo-eyed about the newest hammer drill.

Well, maybe you read the Wall street Journal, too. But you know what I mean. Builders generally have more interest in developing technical know-how than business skills. To wit, Fine Homebuilding has made more than one attempt to publish a business-oriented newsletter, like this one, only to find lukewarm interest among its core readers. We'll see how many follow this blog, maybe things have changed. So let's get started. 

What is a company?

But before we can discuss "running the company," it pays to know what this means. What's a company? It's a business organization, however basic:  A set of distinct business operations working together for a purpose, usually to earn a profit.

Businesses do not have a tangible structure, like the frame to a house, but every business has a framework nonetheless. The purpose of management is to keep that framework functioning effectively. Since the framework is conceptual, you can't see it unless you understand it, it pays to know something about the structure of traditional business management-in other words, the differences between the roll of a Chief Executive Officer (CEO) and a company President, the difference between a Comptroller and a bookkeeper, and how these rolls relate even when one person, maybe you, wear all, or at least several of the hats.

Well, maybe none of this relates to you as long as your primarily job is on the jobsite hammering all the nails, but the moment you put down the hammer to bid another job, purchase materials or make a bank deposit, you're engaged, even if unwittingly, in running the company. And just as you know the rolls of the electrician, plumber, and lead carpenter, you should know the business management trades.

The operating parts of any business fall under eight broad categories of management, which represent, in a nutshell, precisely what you learn to earn an MBA: financial management, marketing management, human resource management, strategic planning management, production management, operations management, service management and, nowadays, information technology management. What makes running your own, small enterprise so deceptively simple is that all of these complex-sounding operational functions manage only three basic resources: money, people, and materials.


But even if you run a handyman operation that employs only you, you still attend to these eight functions:
     1. Financial management: You have to track earnings and expenses, price your jobs accurately, manage your credit, know if you're earning enough to cover both business and personal expenses, make adjustments to become profitable and remain competitive-in other words, in the black and employed.
     2. Marketing management: You have to market your services, even if through word of mouth. Do you give out cards, or refrigerator magnets? Do you set up a web site, or buy a listing in the Yellow Pages?
     3. Human resource management: You may not think you have human resource management with only one employee-you-unless you suddenly decide you have a life, and you want to start taking personal time into account in setting hours of operation and days off, and then maybe you even want the business to provide your family with health insurance and paid time off for a vacation.
     4. Strategic planning management comes in when you begin thinking about how your business will evolve over time to meet your goals, will you grow to add an employee, or partner with another handyman? Will you venture into a new service area, such as energy upgrades, or subcontract warranty services to another builder? Will you scale your systems for growth, or hunker down and simplify to stay small and profitable?
     5. Production management is the one area most of us trained in simply by learning the trades; most builders know how to manage the job site, although we can always learn more, especially if we begin to hire others to do the work. Production management is all about managing the job site, or multiple jobs sites.
     6. Operations management is another thing, it's about how your service is delivered, encompassing everything from who answers the phone to how jobs are bid and how proposals are delivered to the customer. Builders often expect this "job site," the coordination of businesses overall operations, to run themselves without a superintendant. This approach has another name, anarchy, and it generally does not work well. The operations superintendant, or operations manager, is often the comptroller in a small business, sometimes a spouse, or the Chief Operations Officer (COO) in a medium to large company.
     7. Service management is a part of operations, but focused on the customer experience, an area that builders both small and large often manage very poorly. This is where the company vision statement often comes in as a measure of success, are you delivering what you promise? If not, how can you do a better job of satisfying your customers?
     8. Information technology management has to do with computers, yes, but it's fundamentally about how information, from phone numbers to tool shed inventory, and from to checkbook balances to historical cost data arekept and available for meaningful use. It's as simple as a rolodex or as complicated as a nationwide computer network. Someone needs to keep track of how you keep track of it all. 

We could, and will, add to these eight business school divisions of management three others, ethics, ecology, and given the recent economic meltdown, crises management.

But to start, understanding the formal subdivisions of business management doesn't mean you have to make a simple operation complex, the knowledge just helps you think clearly about how and what to get organized--balancing the framework of your business over time into one, smoothly operating whole, in short, a real company.

During the next few months, I intend to bring these bring these eight aspects of management to life through interviews with executives from companies large enough to employ management personnel, and small companies with creative management-juggling strategies, and then to tease out the lessons that apply to any size business, even a company of one.

 

 

For more business insight, read the previous installments of the Self-Taught MBA.


- Fernando Pages Ruiz




posted in: Blogs, business, self-taught mba

Comments (8)

Davidrplett Davidrplett writes: Boy, talk about a timely blog. I have been running a small carpentry/remodeling business for about 18 years and have always struggled with the "business" side of the business. Love the hands on part - doing what it takes to keep on top of management, not so much. Thanks for this blog. I'm looking forward to posts to come.
Posted: 7:54 am on January 24th

Homesmith Homesmith writes: This article is actually much more relevant than the new cordless drill that we drool over. Long term strategy, short term goals and even daily operations can sometimes be lost when you find yourself wearing all the hats. You may love carpentry, but you need more than just your heart to run a business. For 10 years I have had good harvests and have also seen empty fields. I know I spend more time focusing on the work than the business because I don't want to deal with that end of the job. It always helps to hear from others who discuss the whole picture. Thanks for posting something more important than we like to acknowledge.
Posted: 11:20 am on January 23rd

Michaelthemobileguy Michaelthemobileguy writes: Great Blog Fernando,
One major turning point for our company that helped my wife and I to move our remodelling business to "the next level" came 13 years ago when Diana insisted we attend a seminar called "Mark-up and profit". At that weekend seminar by Michael Stone, we learned how to analyse our companies "by the numbers". I left that weekend with a new challenge... how to increase my markup from the 10% I was using to the 70% it needed to be to actually cover the costs of all of the functions you describe in this article. As I moved my mark-up percentage higher over the next 12 months I did lose some repeat clients, but I also found new clients who really appreciated our "process". I shifted to selling the "experience" of working with our company rather than the price. I no longer "bid" jobs, but rather I "consulted with clients". I look forward to future posts.
Posted: 11:28 am on January 22nd

DancingDan DancingDan writes: Another good entry, Fernando - thanks. I've found having an office manager to be a critical piece in my business.
Posted: 8:41 am on January 21st

bobtb bobtb writes: Thank you so much Fernando. I just started a one-man remodeling company last March. I am looking forward to hitting that one year mark. I am constantly reading and trying to learn about business management. I quickly found out I know how to work hard for 12-16 hours a day "swinging a hammer" but the business could not survive if i did that every day! I am Looking forward to reading more.
Posted: 11:36 am on January 14th

FPR FPR writes: Yes indeed, figuring out how to have a business AND a life can be a formidable challenge. I should confess, that although I know the answer, I never managed to put it in practice. Namely, this requires two things: delegating and training. You have to be willing to give up some hands-on management to others, while making sure whomever you entrust is qualified and understands your business philosophy. My mistake was always hiring helpers instead of executives, a bookkeeper instead of a CFO, so even with many employees I had to get involved in running practically all the daily operations. For one, it's more difficult to hire qualified people during boom times because they come with a heavy price tag. It's easier now.

I do know several effective businesses owners personally, who live for, through, and just about consumed by their business. I will try to find a few that have a full, personal life supported by their enterprise, and ask, "How do you do it?
Posted: 7:18 pm on January 13th

sunroomman sunroomman writes: Nice Blog. Good information thus far. I especially look forward to advice on how to scale up the business so I can have a life away from the day to day operations, yet maintain customer satisfaction and profitability in a seasonal business.
Thanks for this blog.
Posted: 8:35 am on January 12th

MrHabilis MrHabilis writes: Thanks for the information. My wife and I have a two year old design-build business and I look forward to following this blog..
Posted: 9:33 pm on January 11th

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