INSIGHTS INTO THE RISK OF FAILURE
If that’s all it takes to succeed in the construction business is a pickup truck, a box of tools, a cast-iron stomach, and a forgiving wife, why do so many contractors fail?
Check next to the causes listed below that you believe most often causes construction companies to fail.
|Cost of Equipment|
|Tightening or shrinking of the market|
ANSWER: None of the above.
REAL WORLD EXPERIENCE
I was the founder and president of the world’s largest international consultancy firm serving the contract surety industry. I assisted in the resolution or salvage of hundreds of distressed or failed construction firms. That experience began my lifetime interest in the causes of construction company failures. From the beginning I collected information on why each company failed. Later, in my career as an industry consultant and professor, I conducted research and published books on the subject.
A HUGE, COMPETITIVE INDUSTRY
If you include all the people involved in ancillary jobs like the manufacturing and transporting of building materials, there are more people involved in producing the built environment in this country than in any other industry. It is a huge horizontal industry with over a million individual businesses.
Consequently, construction has been one of the most highly competitive and high-risk industries in the United States. In this intense competitive environment contractors tended to adopt certain natural defensive postures. For example, if contractors could survive a mistake, correct it, and learn from it, they knew something their competitors might not know. This information gave them a competitive edge that they weren’t inclined to give away. This attitude gave rise to, what I call, a construction industry unspoken code. Some seemed to think: If you secure knowledge of the business on your own through personal experience, that information is yours. You’ve earned it and paid for it. It’s your personal property so let others earn it and learn it the same way. Fifty years of industry experience has led me to conclude that this code, and all that it implies for our industry, has slowed our progress.
WHAT THAT CAN CAUSE
Better ways to operate and organize construction enterprises and improve management and production are too often closely guarded secrets for those who develop or discover them.
- Without cross-fertilization, sharing of essential information, and the collection of a body of knowledge available to the industry as a whole, there is a significant time lag between improvements and modernization within the industry.
- Unlike other industries such as automobile, steel and aircraft that have extensive training programs, under continual industry-wide review and revision, most contractors have to learn how to run a construction enterprise by watching–by doing various jobs, and by working with someone who has been successful in the past. This acquired competence, learned one person at a time, rarely enters the collective body of industry knowledge.
- Because of this, the million small to mid-size enterprises that make up the construction industry tend to encounter and stumble over the same obstacles that their predecessors have and run the same risk of failure.
- As the construction industry continues to mature and expand adding more small and mid-size independent contractors, the risk of failure is not improving and may actually be getting worse.
Let’s Talk Business
The purpose of this blog site is to reverse this deadly trend. It is my intention to develop a forum for the exchange of construction management insights and information. And to facilitate the spread of intelligence acquired independently, but until now, not widely shared. The construction industry has changed dramatically over the years and continues to become more sophisticated and to employ new technologies at an astonishing rate. Construction has also moved closer to becoming a commodity, which increases risk with lower margins. Profit enhancement from productivity improvements and efficiency in the future will depend on our industry’s ability to learn and willingly share information broadly across the industry. Only then will the high risk of failure begin to decline.