Bigger Size Does Not Equal Bigger Profits

According to Nicholas Bloom’s Harvard Business Review article, “Corporations in the Age of Inequality,” a slim percentage of top-earning companies actually earn significantly more profit than their rivals in what’s been deemed the “winner-takes-most” economy. As leading companies earn more, there is less profit remaining for lagging companies, only widening the gap.

So, what does the construction industry in particular look like? In research between the Construction Financial Management Association (CFMA) and Coltivar Group, a representative sample of 363 industrial and nonresidential U.S. construction companies ranging from $1 million to over $1 billion in revenue were studied. Profitability and return on investment were used as an objective lens to compare the companies.

While 50% of companies had a competitive advantage, defined as the ability to earn above-industry-average economic profits, the calculation revealed that companies in the top 20% earn nearly 83% of all economic profit, fulfilling the Pareto principle, or the 80/20 rule. The remaining 80% of companies are confined to the dog-eat-dog environment of the lower deciles, where they contend for leftover scraps of industry profit.

How did these successful contractors achieve the initial success to advance up the curve?

Can You Fly Your Business in Bad Weather?

In aviation there is a rule around the weather and when a pilot is allowed to fly an aircraft. It’s called Visual Flight Rules, or VFR. The average private pilot is only allowed to fly their plane under VFR conditions, i.e. when you can see the environment around you with your eyes and you know where you are going.
The same thing happens in business. Average business owners are fine in good economic weather, but what if that changes? Can you fly your business in bad weather?

Prevent Budget Blowouts

With the construction industry being pretty buoyant at the moment, attention should be turned to improving operational efficiency as the best way to increase profits. Last year I ran a couple of seminars based on the results of an industry survey on the frustrations builders have in project management.  It sparked some interest so I thought…

Learn to Love Budgeting

Let’s face it.  Most tradies would rather be forced to watch replays of marathon chess matches than put time into creating a budget for their business.  I can understand their reluctance, but I would also like to show them the error of their thinking. Creating a budget for your business can be one of the…