The construction industry has been in a free fall for the past three years. We are all growing weary of cost-cutting and low to non-existent margins. And many subcontractors, vendors and general contractors are simply going out of business. We seem to spend a lot of time looking over our shoulders, wondering what next round of bad news will overtake us.
However, there is another option. Every industry has a clear business cycle. An economist that I hold in high regard is Brian Beaulieu. Based on his work at the Institute for Trend Research (ITR), Beaulieu suggests that there are four phases to a business cycle – recovery, growth, prosperity and recession. Each phase has corresponding actionable items that CEOs should execute to best react to economic conditions. By reviewing leading indicators, Beaulieu can determine which phase various segments of the construction industry are in.
Since 1948, Beaulieu’s company has been looking at national and international data to create its forecasts. Over the past few years, his projections have been 95 percent accurate. This sort of accuracy is generally not feasible from local economists. It takes a world view, collecting a massive amount of data and connecting seemingly unrelated bits of information to make predictions with such high accuracy.
Understanding the fact that local economic indicators are important in the short-run, national and global indicators have an inescapable impact on all economies – big and small.
The non-residential construction industry in the United States is in the late recovery stage. Beaulieu is projecting that commercial building construction will increase 5.4 percent in 2012. Office building construction will increase 4.6 percent. Residential building is in the early growth phase and will increase 1.5 percent.
Although this growth is good news, it is important to remember that the construction industry is only a fraction of the size it was at its peak. It will be a long, slow slog before it regains prior levels of health and prosperity.
In order to prepare your business while in the late recovery/early growth stages, Beaulieu recommends executives focus on company culture, making sure that behaviors reflect that positive culture. Business leaders should go about making change now in order to increase efficiencies and leverage strengths. There are areas where management can begin the process of change. A few of the basics include:
• Establish goals and accountability measurements
• Review and uncover competitive advantages
• Implement training programs
• Recruit and hire top people
• Focus business development efforts around core competencies and competitive advantages
• Watch ROI and identify high- and low-profitability transactions
• Maintain and pursue quality
It’s no secret that construction is a tough business. Not sharing information is the order of the day. Often it seems contractors behave like a bunch of circling sharks in an indoor tank, all thinking they are in the lead, about to pass up the guy in front of them.
I know from personal experience that following Beaulieu’s recommendations while “swimming with the sharks” is very hard work. But it has been and continues to be vital to the success of my company.
The good news is that Beaulieu is coming back to Vancouver on Friday, March 2nd. The details of the event are being finalized, but it will be an opportunity for the Vancouver business community to hear from a guy that is the “rock star” of economists.
Early in my career, an industry mentor told me “Contractors don’t go broke from lack of work; contractors go broke from excessive optimism.” Being a glass-half-full sort of guy is great, but you must acknowledge the reality of your situation and take action, not just wish it were different.
My wife often says I am the Billy Graham of small business. I love our community and the great businesses that are here. I am committed to helping business owners be more successful, so they can build their personal wealth. I know that Brian Beaulieu’s presentation will be a great contributor to those efforts.
Ron Frederiksen is president of RSV Building Solutions. He can be reached at (360) 693-8830 or ron@rsvbuilding.com.
