How Your Construction Background Shapes Your Success
In this episode, we explore how your construction background can significantly shape the success of your company. Whether you come from a large corporation or a small hands-on business, your experience plays a key role in managing operations, handling finances, and growing your business.
We share real-world examples and discuss how different backgrounds affect the approach to building a successful construction company. Perfect for contractors considering entrepreneurship or looking to refine their management style.
Topics we cover on this week’s episode:
- 00:00 – How construction experience influences business success.
- 00:18 – The Influence of Large vs. Small Company Experience
- 01:00 – Setting Up Systems and the Mindset for Success
- 02:30 – Real-Life Examples of Contractors Transitioning
- 04:15 – Understanding Costs and Overhead
- 06:00 – Balancing Experience and Expectations
- 08:00 – Key Takeaways and Advice for Starting a Construction Business
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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com
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TRANSCRIPT
[00:00:00] Wade Carpenter: How does your construction background shape your success as a business owner? Whether you come from a large company with structured systems, or a smaller hands on environment your experience affects how you manage your finances and grow your business. Today we’re exploring how different backgrounds influence the way contractors build and run their companies.
This is the contractor success form. I’m Wade Carpenter with Carpenter and Company CPAs, and with me is my cohost Stephen Brown with McDaniel Whitley Bonding and Insurance. Steven, when contractors step into entrepreneurship, how do you see their backgrounds affecting their approach to managing?
[00:00:31] Stephen Brown: Just from an accounting standpoint you’re used to certain systems being in place that are already there when you’re working for a big company. I have a customer that is starting their own construction company and a background is working for Bechtel, and overseas for Bechtel. So that’s an operating realm that can be just light years different from your organization.
And when you’re putting all these systems in place for your organization, if you come from a big organization, you can take things for granted. And maybe not understand, what you have to do to get things set up correctly.
You were telling me that giving advice to someone that wants to start up their construction company, that doesn’t have the right mindset of what it takes to get things set up and running properly is huge.
And that’s what I liked about this topic, Wade. You broke it out into the different t aspects of running a part of the organization and then the mindset between someone from a large company background, versus someone from a smaller company background. So, how did you break that down, Wade, and how would you like to go through this?
[00:01:41] Wade Carpenter: Well, I just wanted to kinda maybe give a little context. Because there’s a couple of things that happened in the last couple of weeks. First of all, there was a listener that actually called me up and , he and a partner were breaking off from a pretty good sized contractor.
And I got very real on the call with them about, they were coming from a large company background and they had seen how all the systems had worked. , but I think they were a little bit naive in thinking that the software is going to do all this stuff for them. And I also had another situation in the last month or so where we have a four to five million dollar contractor that is hiring two guys to build a new division for them that are coming from a billion dollar plus company, and they were coming in and wanting all these big systems, and there was a huge–
[00:02:36] Stephen Brown: Disconnect.
[00:02:37] Wade Carpenter: Absolutely. So there’s pros and cons to both sides of it. So this conversation with these prospective clients just led to me really thinking about some of these things that I see all the time and I’m sure you see as well.
[00:02:51] Stephen Brown: Absolutely. I think it’s a really great topic, Wade. Your operational mindset and your understanding of systems and what to expect from them are something that we see all the time affecting how we communicate with our customers.
[00:03:07] Wade Carpenter: Liken this to a major league ballplayer. You got somebody that came up in the United States and had the best coaches and had the best support , versus somebody in Puerto Rico that learned in the sandlots.
[00:03:18] Stephen Brown: Actually, Puerto Rico’s got awesome baseball.
[00:03:21] Wade Carpenter: They do, but they didn’t necessarily come from the same background. There’s different skill sets and they end up coming to the major leagues and sometimes you can take somebody with natural ability that, doesn’t necessarily have the best form or whatever.
That was just one example that I thought of. But there’s something to be said for the small contractor. if you came from a small construction background, you’re probably used to having an understanding of, this is what it takes. And you’ve got to wear all these different hats. The accounting and doing all the bidding.
[00:03:54] Wade Carpenter: And most contractors that step out in business, they’ve just been used to building it themselves. Maybe they understand a bit of estimating and know how to manage a project.
There’s still a disconnect, but people that have all the larger size, they have the disadvantage of coming into a situation where they don’t have all the support and a lot of times it is culture shock.
[00:04:16] Stephen Brown: I can only imagine. The culture shock of, you can say, and I guess I would be speaking to the listener that comes from a large company background that wants to start their own construction company, would be just the fact that in a smaller organization, you are wearing more hats. Exactly like you said.
The structure’s not as diversified among different people doing different work. You are doing more of different things. So you’re learning enough about different things. If you come from a large company background, you may be absolutely perfect specialist at what you do. And that’s what you’re hired to do. But you have to get real about what you don’t understand about running a construction company.
So again, the smaller firm might allow you to understand all the moving parts that are involved in making money, and making that net income, making that profit at the end of the project and making customers happy, keeping customers safe. And implementing the software that’s right for a smaller scale company.
[00:05:22] Wade Carpenter: mean, I think about it obviously from the accounting standpoint, if you’re used to having all this project management software that’s really expensive from the accounting standpoint, usually the larger contractors have, a good job costing, phase code, cost code structure.
Sometimes it’s too complex for the smaller construction background that they may need, but at least they understand what the picture is supposed to look like when they’ve got good information
Versus the smaller background contractor may not know what it’s supposed to look like when it’s finally done.
So again there’s a culture shock from the big standpoint. I’ve seen many of them fail from that big standpoint, because they never can really get the systems in place to , get it where they were able to get the right, information.
As opposed to the other side where the smaller guys don’t have a handle on what it looks like or what it could look like.
So they struggle time after time to really get a handle on what their job costing is, get a handle on why they need to be changing the overhead and the factor that they’re putting into their bids.
[00:06:34] Stephen Brown: Yeah. No, it makes perfect sense to me. It seems to me too, Wade, and this is one of the aspects that you listed on a chart that you provided to me is just having overconfidence in what you can do and what you can’t do. What are your thoughts on that as you transition from one size to another size company?
[00:06:56] Wade Carpenter: I see it from both sides too, as far as, some people from the larger background probably understand where, hiring somebody at a higher end, getting good people costs money in construction. And they do have a little better appreciation for what is it bond costs? What does the accounting services cost? What would a good construction CFO level person, what would they cost? And a lot of times they’re not able to cover that overhead.
Speaking of overhead as well. It can be a and cons to that. Because from the big standpoint, the large contractor standpoint, you’ve got people that have been using a factor and especially happens in general contractors.
If you got a hundred million dollar general contractor, their overhead as a percent is probably pretty darn low. But they step out into business and they’re used to using an overhead factor of, you know, X. But all of a sudden, they’re doing, you know, at best 4 or 5 million, 10, even at 10 million, they’re, their overhead factor is going to be a lot higher as a percent.
So they’re not typically making the same type of margins that they thought they were going to be making.
[00:08:08] Stephen Brown: That’s a great point. Just what you’re used to seeing, not in just overhead, but your whole mindset of understanding your market and what kind of Profit that you can make and then bigger companies have bigger overhead that they have to manage. That makes a lot of sense to me.
[00:08:27] Wade Carpenter: They may be able to spread that overhead over a larger base.
Another avenue that we could probably explore is the network that these people have. A lot of times in the bigger companies, they are out there networking with bigger people. And that can lead to a lot of different doors, but it also can lead to a lot of different expectations that they can get work.
[00:08:51] Stephen Brown: Huge work. Yeah.
[00:08:54] Wade Carpenter: And a lot of times they find that they don’t really have all that same trust. They may have some great experience, like if they go to get bonding for the first time. Having some good experience behind them probably goes a long way.
[00:09:06] Stephen Brown: It does, but they also have to have completed projects in order to get bigger projects themselves with their new entity. That’s a huge problem I’ve seen, Wade. It’s just simply, I’m used to managing, don’t you understand, 100 million projects.
Yeah, but you’re starting your construction company from zero. What is your construction company completed so far? Every surety company looks at it from that perspective.
[00:09:34] Wade Carpenter: I think sometimes it leads to overconfidence, because you’re out there managing really big dollars. But if you can’t translate that to what you’re doing or be able to sell that, then you’re not able to convert on any of that.
[00:09:48] Stephen Brown: Sure. Absolutely. And Wade, there’s just so many hats you have to wear when you’re starting a construction company. There’s just so many. We recently had the podcast on, the six hats of management philosophy, but, is that right, Wade? The six hats?
[00:10:06] Wade Carpenter: Yeah. The six thinking hats.
[00:10:08] Stephen Brown: Six thinking hats, yes.
[00:10:10] Wade Carpenter: And I think that’s a problem for any contractors. You’re out there on your own, no matter whether you’re coming from the big perspective or the small perspective. That’s one of the things that people don’t realize when they jump out in business, is that you are going to have to wear all these hats. And you got to consider a lot more things than you ever realized.
[00:10:29] Stephen Brown: You are taking the risk, not the big corporation, and you are signing on the dotted line. Then the whole chart really had so much to do.
When you were talking to these people and you said you had to be real tough with them. Real. You used the word real with them. And you told me earlier you had to be tough with them. What was your main frustration with their mindset?
[00:10:52] Wade Carpenter: So going back to some of the things, I think I’ve already said this, but if you expect that the software, if you’ve seen software, like their example that they were using, they’d send the bills into some software that they had apparently some outsourced model that’s similar to ours, where they would send it in to the service and they would get it coded to their accounting support, and as well as they thought the accounting software essentially did all the work for them. It’s like, talk about the bank feeds all the time.
That was a huge misconception that t they had as far as what the software does and getting the setup right. As well as, it’s one thing when you’re just going in and approving these bills and getting them to the job, but you don’t have to worry about paying them and the cashflow and all that kind of stuff. That’s one of the things that I quite frankly felt like they were a little naive in thinking that software is going to do all that. The other part where I was talking about that example, where these people were coming in from a billion dollar company down to the small mindset, the owner of the company is finding out really quickly that they’re expecting a lot bigger things, capabilities, that the company can do. And I think there was a disconnect from both management side. I know that’s a different perspective, somebody starting up their own versus merge this billion dollar mindset, into a really small company.
So it’s similar. And so a small company, that’s one of the biggest things is change, adapting to change. And knowing that you are going to have to change no matter what, if you’re coming from the small background versus the big background, your job changes and your job just got infinitely harder.
[00:12:43] Stephen Brown: And at the same time, Wade, having the mindset of working for a bigger company will give you an idea of how you want to model your company’s operation. What you liked about it, what you miss about it that you can implement.
I had this story and I may have mentioned it before in earlier podcasts, but I guess it was over 35 years ago, I was down at a Mississippi Highway Bidletting, and one of our agency’s biggest customers, Mr. Buck was his name. He had a huge highway construction company, and his grandsons are operating it now. But, he took off a project with just simply a legal pad. He got a pencil and he sat down and he put the numbers to this huge project back then. It was huge back then, it was good size now.
But he did everything. And he had his estimators in there and there were four of them. And back then the estimators absolutely had to have their, just as an aside note, their calculators exactly the way they wanted them.
And having to run back to Memphis to pick up other calculators was that important, cause the jobs bid the next morning. And they were just getting material prices and other sub prices in literally the night before the bid.
Anyway, he just basically put his bid together and it was within, a half a percent of his professional estimators. That came from his experience, Wade. He knew every element of what it took to complete that project successfully.
Once you wear those hats and you do it over and over again, as a smaller contractor, you really intuitively know your business better. That’s what I would say as far as being a small contractor wanting to grow versus coming from a large construction company and wanting to start your own business.
It’s understanding that mindset and appreciating that.
[00:14:38] Wade Carpenter: I guess I would also just add to that, when you’re coming from the project management side or wherever you’re coming from and you’re starting your own business, I don’t think– that’s part of the premise of my book, Profit First for Construction that’s coming out. Is that a lot of people don’t understand the cashflow implications of all this.
And you may have been having to only worry about just your job, but once you realize Hey, I do have all this overhead, it may hit you in the face that it’s like, Oh, I understand , why we had to put this factor on there and finding out that factor is a lot higher than you realize.
The other part of that was I have seen, and I spell this out in the book a little bit because it’s a story about construction. I’ve seen contractors see hey, the owner drives a brand new truck every year and he must have it made. But you’d be surprised how many of those contractors are struggling with cash flow and struggling to make–
[00:15:34] Stephen Brown: to make that truck note. Yeah.
[00:15:36] Wade Carpenter: But again, having a good, fleet of trucks in your parking lot. That can be misleading. And so many people think that the grass is always greener. I’m not telling anybody not to go out in construction. Construction can be very lucrative, but the point is, consider what your background is and how your biases might affect your thinking as you’re starting up your construction company. I guess that’s one of the main points I’d like to make.
[00:16:03] Stephen Brown: Perfect. Yeah. Your biases, what you are used to, your understanding of things. It’s not right or wrong. You just have to be aware of it.
[00:16:13] Wade Carpenter: So any other final thoughts from you?
[00:16:15] Stephen Brown: I would highly recommend hiring, if you are starting a company, the best thing you can do is, we’ve always said on the Contractor Success Forum, is get your team in place. And one of the most important team members you can have is a construction oriented CPA like Wade, Carpenter and Company that can help you get things set up, can help you do a pro forma budget to figure out what your expenses are going to be to accomplish what you need to do before you leave and start your own company.
[00:16:43] Wade Carpenter: Thank you for that shameless plug.
[00:16:44] Stephen Brown: Wasn’t saying– it’s a fact.
[00:16:46] Wade Carpenter: Thank you all for listening to the Contractor Success Forum. We’re happy to answer any questions or hear your thoughts on the topics you’d like us to discuss . Drop them in the comments below.
For more information, visit ContractorSuccessForum. com, the Carver CPA’s YouTube channel, or ProfitFirstConstruction. com. If you enjoyed this episode, we’d appreciate it, would help the channel a lot if you’d like, share, and subscribe. And we will look forward to seeing you on the next show.