O Captain My Captain
The Captain/Master of a large ocean liner does not steer the ship; that’s the Helmsman. He doesn’t navigate; that’s the First Officer. He doesn’t manage the deck staff; that’s the Bosun, or Boatswain. He doesn’t maintain the engines; that’s the Chief Engineer. He doesn’t even pilot the ship in and out of the harbor; that’s the Harbor Pilot. What, then, does he do?
Cruise Ship Captain’s Role
He decides where the ship is going and stands responsible for the safety and progress of the vessel’s community under his care. He keeps track of the ship’s status and progress hour by hour and orders adjustments in course and speed as he sees fit. He oversees the ship’s status. He receives real time safety and efficiency reports from the ship’s engineering officer, chief purser, senior medical officer, safety officer and the watch officer on the bridge. He decides on the overall course and speed the ship should maintain to reach its planned destination.
He doesn’t get bogged down in how many guests used the swimming pool on Wednesday; how the magic show went over; how many Pimm’s Cups were served in the cocktail lounge or what the towel count was when the ship left port. His mind is focused on the big picture. He sees the ship, its passengers and crew, as a complex, living, breathing unit that he must safely guide to its destination.
The construction company CEO is like a cruise ship captain. He’s not the First Officer or the Helmsman, or the Boatswain. He hires a crew, tells them where he wants to go, and then checks to see if they are getting him there. He doesn’t get lost in the minutiae of accounting or engineering or design. He instinctively attends to the strategic direction of the company. He is the captain of his ship.
Construction Captain’s Role
The captains of construction companies navigate by a firmly held set of beliefs that govern the choices they make while steering their companies through the competitive seas of the construction marketplace. The following are the most common beliefs held by construction company CEOs That you may want to question:
- Cash is king.
- Sales growth equals survival.
- We must be smarter than the competition.
- Bigger is always better.
- Cash-flow not Profit.
- Bid low and grow – get the job – make up any financial shortfall in production efficiency and extras billing.
- Written budgets are superfluous and do not reflect what actually happens. The real budget is active in my mind, and I alter course as I see fit.
The Veracity Test
When we tested the beliefs above against actual results here’s what we found:
Cash is King – Depends on what you mean by cash. Future cash, current cash flow, cash on the balance sheet, available cash, cash from profits, cash from accounts payable, cash from accounts receivable, cash from lenders. Each one of these “cash-es” differ in quality and some are definitely not King. We have invented a way to test the quality of cash.
Sales Growth Equals Survival – The opposite may well be true. Rapid top-line growth can weaken the capital position of a firm and cause it to falter. We have invented a test to measure a firm’s ability to finance its rate of growth.
We Must be Smarter than the Composition – True. But how can you tell if you’re smart? What’s an accurate measurement? We have invented a tool to compare your firm’s performance to your competition.
Bigger is Always Better – False. Many firms were successful when they were an appropriate size but failed when they got too big too fast. The question is, what is the appropriate size? We have invented a scale that can tell you just that.
Cash-flow not Profit – Could be true, but not always. It depends if profits are the source of cash. Profit margins are more telling than dollar amounts. Profit margins also indicate efficiency when compared to other firms.
We’ll show you how to extract this information from your financial statements.
Bid-low and Grow – Wrong. Bid accurately and grow profits, cash, safety, longevity, and substance.
We’ll show you the data.
Written Budgets are Superfluous – Budgeting in your head Is no budget at all. A proper budget is a guide for future activity. It’s like plotting a course. The budget in your head reacts to past events. It’s like navigating by standing on the fantail looking astern.
We’ll show you the difference.
Next Week’s Blog
We are developing a self-administered diagnostic program that provides the equivalent of an independent expert analysis of every functional area of a construction contractors business. Check back over the next several months and we will explain how it works.