Growth goals are top of mind for every subcontractor. Subcontractors know where they want to be, and they want to do the work it takes to get there. But piling on projects in the name of hitting a revenue goal can be counterintuitive to success—catastrophic even. Scaling too quickly creates challenges that prevent you from creating sustainable growth.
We sat down with construction consultant Jerry Aliberti, principal of Pro-Accel, to get his take on where subcontractors should focus their attention when trying to achieve responsible growth. He provided six reasons your business may not be scaling properly—and the ways you can course correct.
Table of Contents
1. Cash Flow Problems
Growth demands resources, like more labor, materials, equipment, and administrative resources. But when your business starts growing faster than your ability to fund it, cash flow issues will come barreling down on you. You may find yourself with supplier invoices with net-30 terms stacked up on your desk, while your bank account only has enough to cover a couple of weeks’ worth of payroll.
The Solution: Before you prioritize growth goals, set a goal of building a six-month reserve of working capital options. This not only serves as a safety net, helping you stay operational if you run into cash flow challenges, but it can also be used to fund new opportunities and business growth. Create cash flow charts to understand when capital is needed and get a good idea of how much you’ll potentially need. This foundation helps ensure you can take on new projects and withstand the unexpected without jeopardizing your financial stability.
2. Overcommitting Resources
A big reason subcontractors struggle to scale is they don’t have enough skilled workers or strong leaders to handle more projects. Early stage owners often try to do everything themselves, and without solid middle management like good project managers, superintendents, or foremen, it’s impossible to grow. On top of that, many subcontractors overextend their resources, both in terms of management and equipment, by taking on too many jobs at once, which leads to missed deadlines, poor quality on projects, and a damaged reputation. To make things worse, subcontractors often lack access to the capital they need to invest in the right equipment or cover the upfront costs associated with bigger projects.
Solution: Continue to enforce having a diverse working capital stack and focus on building a strong team. Invest in hiring and training your workforce, and develop leaders who can take ownership of projects. Be realistic about the jobs you accept, only taking on work you have the capacity to deliver well both in terms of capital and labor resources. And don’t be afraid to work with a financial expert or lender to secure the capital you need to grow responsibly. Create a scalable plan before taking on bigger jobs. Outline the roles you’ll need, set clear limits on your workload, and have a solid cash flow plan to avoid overextending yourself. Planning ahead will save you from burnout and set you up for sustainable growth.
3. Chasing Topline Revenue Over Bottom Line Profitability
This complements the previous point of not overextending resources, but it’s more about perception. Topline revenue figures can seem appealing for subcontracting executives looking to grow, e.g. going from $10M to $50M in revenue, and can be a great goal for your business to work toward. However, it shouldn’t be the only financial goal you establish. Focusing only on topline revenue can tempt you into bidding on larger jobs, but that can blind you to the metric that really matters: profitability.
Solution: Focus on bottom-line revenue. A $25M business with a 20% profit margin is more stable than a $50M business with 10% margins, even if the end result of $5M in profits looks the same. Prioritize cash flow and profitability as the engines that drive sustainable growth. Focus on operational efficiency and reassess your performance quarterly. Ultimately, it’s not about how big the job is, it’s about how much profit you’re making on the job.
4. Lack of Processes
Subcontracting businesses often start this way: You’re an expert in plumbing, roofing, or HVAC who wants to start your own company, but you might not be an expert in the mechanics of business. While business owners may learn the nuances of running a business over time, there may be some legacy ways of operating that can hinder business operations as the company matures. The systems and processes a business had in place to achieve $5M in revenue may not be the same systems and processes that will allow the company to scale to $15M in revenue.
But the lack of scalable processes or operational efficiency doesn’t just apply to those already in the company. Each new employee brings in the processes they used with their previous employer, so it’s up to you to get your entire workforce on the same page, or else unstructured chaos will compound as you grow. This can be accomplished by regularly revisiting and improving your processes. The goal is to get creative, reduce redundancy, and create automation so as you hire more people, they can be as effective as possible. This will also help you create consistency throughout your existing hires and before onboarding any new talent.
Solution: Invest in automation, strong software, process development, and consultants to help you establish the operational foundation that will allow your business to maintain operational efficiency and scale to your goals.
If you’re not sure where to start, the VSEM method is particularly effective for helping you articulate and prioritize goals and breaking them down into actionable steps for each quarter.
The VSEM model encompasses:
- Vision: Set 2-5 year goals for the business
- Strategy: Identify 2-3 strategies to help you achieve each goal
- Execution: Define 4-6 goals per quarter that must be accomplished to support each strategy
- Metrics: Assign success metrics to track progress on each goal; be flexible and adjust your strategies accordingly
This structured approach can help you develop a strong and adaptable vision that aligns with your business objectives.
5. Employee Burnout
It’s all too easy for subs to grow quickly and not hire enough people to support that growth. Subcontractors usually don’t have a playbook telling them when to hire the next person and what that role will be. As a result, it’s common for existing employees to be overextended in a growing business. That will lead to turnover, which in turn strains the business. At some point, an employee who was wearing multiple hats and performing multiple roles will need a sole role so they can focus exclusively on delivering that role’s responsibilities. For example, a superintendent needs to be a dedicated superintendent, a PM needs to be a dedicated PM, and an estimator needs to be a dedicated estimator; you can’t expect one employee to focus on doing all of the work for three roles.
Solution: Keep a finger on the pulse of how employees are feeling about their workload during periods of growth. Focus on identifying burnout before it erupts and results in turnover. Work with your team to strategize what new and supportive roles will be needed to fix existing problems with overextended employees. Also, rapid growth can strain company culture, leading to disengaged employees or misalignment in goals and values. Keeping your employees engaged and sharing the company’s strategic direction will help keep everyone motivated because they understand where the company is heading and have a clear understanding for how important their role is to that growth. To support your efforts, check out these 16 battle-tested tips from other subcontractors on how to support employee retention.
6. Stopping Estimating
Don’t make the mistake of becoming complacent with your workload and easing up on estimating. You never know when work will dry up, or project delays will affect your AR. Plus, high-growth periods may see you buying pricey new equipment to support the work. If the work dries up because you weren’t continually estimating, you’ll catch yourself using future profits just to cover the overhead of those large purchases. When that happens, high growth becomes something you’re literally paying for, as opposed to it paying you.
Solution: To stay out of the feast and famine period that hurts so many contractors’ cash flow, never take your foot completely off the gas when it comes to estimating but ease up on it. Keep building your backlog while strategically planning for future projects. As your backlog builds, you can bid more conservatively. Be open with your existing clients who rely on you for bids. Let them know you’re stretched thin and want to continue to support them, but you need to be covered for this additional growth. Also, consider whether leasing equipment might make more sense than buying it outright during uncertain growth phases.
Scaling your subcontracting business doesn’t mean taking on every opportunity that comes your way. It’s about intentional growth, building cash reserves, maintaining processes, and focusing on profitability over size. By addressing these six challenges, you can set your business up for long-term success.
