David Gerstel's take on the Benshoof Interviewcomments (1) May 30th, 2012 in Blogs
One thoughtful reader, and the author of a competing book about running a construction company, David Gerstel, subject of an earlier blog, posted a provocative comment on my interview with Mike Benshoof, "MD for the Ailing Builder." He also sent me a personal email with a more detailed critique of the interview, which I found cogent to the discussion of business planning and its place in the construction industry today. I thought you might find it interesting, too, so I am posting the entire email here, just as Gerstel wrote it.
David Gerstel's take on the Benshoof Interview
You've got to know your numbers" emphasizes a friend of mine who, like Mike Benshoof, is an entrepreneur with an MBA and big time corporate experience. They are dead right. Way too many of us, including myself when I started out as a builder, have gone into business without committing to the core work of running a business, namely the management accounting that Benshoof insists on. We go into not-working-for-a-boss and call that owning our own business. The linchpin of sound business practice is learning what numbers you need to gather, then compiling them, mastering them, and making decisions based upon them. If you don't want to do that but can't find a well run, good paying construction company with a job for you and are tired of working for disorganized contractors -- likely disorganized because they also have not embraced accounting as a management tool or systems thinking in general -- then consider applying for a job as a building inspector. We need good inspectors as much as we need good builders.
That said, with respect to another fundamental issue Benshoof addresses I prefer a somewhat different approach. The kind of business planning he favors seems to me a bit too tidy for the turbulent realities of the construction world. To get a perspective on his planning proposal, try this: Imagine a construction company in business in 2002. The owner carefully establishes the metrics Benshoof suggests. He sets lifestyle and financial goals. He pares production cost and increases margins. He tracks leads and closures. He winnows out unprofitable work and focuses on his money makers. For several years, with reasonable success, he executes his plan. Fast forward 10 years, to today. Where is he? Steadily marching toward the retirement he neatly placed as the end result in his decade old plan. Or sucking desperately for air? Maybe not even getting paid for doing the job of running his company, and not recapturing overhead much less making a profit? Or outright hemorrhaging cash? Thrown into every kind of misery and disarray by "the Great Recession."
A lot of builders have executed the kind of planning Benshoof advises, for he is not the first person to suggest it. (In truth, his thinking is fairly conventional -- though unusually well expressed and well adapted for use by us builders). They have gone that route only to now find themselves in a train wreck. Partly for that reason, partly because of my own built-in inclinations -- and, not least, because a guy named Warren Buffett who I pay a lot of attention to and who seems to be pretty good at business, says business plans are silly -- I tend not to emphasize planning.
I prefer to emphasize preparedness: Be prepared for change. Be always on the lookout for opportunity and ready to turn toward it. Be prepared to handle the whole spectrum of opportunities from repair and service work to development and re-development that we encounter as builders. Be ready to turn on a dime. Understand that life is generally what happens to us while we are planning to do something else and that we have to be ready to go with the flow. So be prepared, also, for severe challenges, for very, very tough times. Craft a stout ship that can handle the roughest seas. Minimize overhead; eschew debt. Make frugal and wise use of resources; operate with the sparsest possible infrastructure. Organize and trim waste relentlessly. Work at maintaining integrity in all things and relationships. Otherwise, across the years you will eventually encounter a storm that will capsize you.
In short, be prepared for the good, the bad, and the ugly. And even as you go for it, do keep in reserve the acceptance that at times, prepare though you may, the force of history will render you helpless. You will have to go where it blows you. A builder I admire, once the proud employer of a sizeable team of crack carpenters and subs, has his tool belt on again and works at his job sites with just a helper or two. "You have to be humble," he smiles. "That is strength."
Along with my general preference for preparedness over planning, I have a cautionary thought about one specific bit of advice Benshoof offers in his interview. He urges builders to cut costs, noting especially the opportunity for cuts in production cost. That's fine, but I would like to state more emphatically than he does, at least in his interview, that if you are going to cut production costs you better find a way to do that without impairing quality. Otherwise you likely will just kick the can down the road -- straight into loss of reputation or even a lawsuit over premature building failure. You will take your losses later rather than immediately.
Of course, you can cut production cost without impairing quality. My own recent book Crafting the Considerate House, offers methods that lower various costs of excavation, foundation work, and framing through finish by ten, thirty, fifty and even higher percentages. All uphold quality or intensify it even as they save resources and dollars. Though I go at things at bit differently than Benshoof, I am planning and prepared to learn more from this guy. I appreciate his clarity and depth of knowledge. I will get his books and in the next editions of Running a Successful Construction Company and Crafting the Considerate House I will likely quote him. His well put insistence that builders focus on their numbers, that we realize that management accounting is more than tax accounting and that we get after it, is just so spot on! Whether you lean toward making a business plan in anticipation of a trip down a straight and smooth road to riches and retirement, or prefer preparing for a bumpy and jarring ride with hopes of a good outcome, you've got to know your numbers! Don't want to do that stuff, just can't stand paper work and accounting? Hey, building inspection is an honorable profession!
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