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While most employees are focused on putting out the latest fire on one of their jobsites, the best employees are doing one thing to set themselves apart—thinking about how to increase the value of the business.
Construction business owners—especially subcontractors and small-to-mid sized GCs—consistently face the same problem: how to get their money out of the business.
If you don’t know what that means, the short explanation is this:
- Owners invest their money into the business (equity)
- Every year—ideally—the business is making money (net profit)
- At the end of each year, when the business has extra money (net profit), the owner pays themselves (like a dividend in stocks), then reinvests the rest back into the business (retained earnings)
These “retained earnings” increase the amount of “equity” the owner holds in the business.
At the end of their careers, owners want to sell their equity stake in the business in order to “get their money out”, i.e. collect the payout for all of their investment into the business over the years. In simple terms, this is the life of a Construction business owner:
- Invest money into starting a business
- Work hard every year to make money and increase equity
- One day, sell the business and finally make a big return
And how do they sell the business and collect that return? Well, there are 3 typical options in construction:
- Sell the company to a competitor/market leader
- Sell the company to a private equity firm
- Sell the company to key employees
There are a a lot of reasons why your owner may choose one or another (more on this in a future newsletter), but that’s not what we’re here to talk about today. No, we’re here to talk about you. And how you can be one of the best employees in your company.
Because most employees don’t understand any of the above, they only look out for themselves: their salary, their projects, their team. And there’s honestly nothing wrong with that! But it’s not how you become an indespensible part of the business. No, you do that by thinking about how to make the business better in order to increase its value and help your owner gain more equity.
If you do this you will:
- Get paid a higher salary
- Make more in your bonuses
- Get promoted higher and faster than your peers
- And even POTENTIALLY earn an opportunity to buy an equity stake in the business
If you want any of those things (you should), then here are 3 things you should be focusing on today to increase the value of your company. You can go out and start working on these things tomorrow, and I promise you: you will immediately stand out from your peers. So go get started making more money and climbing the business ladder by focusing on these 3 things:
1/ Scalability
Valuable businesses are scalable.
What does that mean?
They have easily repeatable processes, functions, and workflows. Four Project Managers on four different projects do things the same way. The customer knows what to expect when they work with you. You have standard operating procedures.
Why does this increase the value of the business?
Because anyone that purchases your business wants to know that it runs smoothly… they probably want to grow, and you can’t grow efficiently if everything is a mess.
So, you should be focusing on how to make your business easily scalable. Write procedures, snuff out problems, train your people. It’s not super complicated but it does take a tremendous amount of discipline.
2/ Sales Diversification
Valuable businesses have sales diversification.
What does that mean?
My boss and mentor gives a fantastic speech about diversifying your sales in construction. At the heart of it, he points out that most construction companies focus on:
- 1 or 2 key clients
- In 1 or 2 key sectors
Then, a recession hits, and all of the sudden they start chasing work with other clients in other sectors—but it’s too late! No one wants your bid after you ignored them for the last 11 years.
Why does this increase the value of the business?
Because anyone that purchases your business wants to know that it has a strong sales engine… a good mix of clients in a good mix of sectors. That way, if a recession ever does hit, or any other economic hardship for that matter, the business will be able to survive and thrive despite the greater market struggling to get work. This also implies a deep expertise that is highly valuable to a buyer.
So, you should be focusing on how to diversify your sales. You need disciplined business development efforts going at all times. You need to up-skill your people to be proficient in multiple sectors. You need to say “no” to some projects so you can say “yes” to others with different clients in different sectors.
In short, you need a unified Go To Market Strategy, and the sooner the better!
3/ Making your owner obsolete
Valuable businesses do not rely on their owner to run.
What does that mean?
Most construction companies are a relative “one-man-show”. The owner is involved in bidding, project management, and making sure the jobs get built in the field. They may even be chasing after payment! Nothing happens without going through the owner.
This is a problem. And your job is to make it stop. You need to become a critical part of the business—and help to build a team around you who does the same.
Why does this increase the value of the business?
Because no one wants to purchase a business that relies so heavily on the owner! When the purchase happens, the owner may stick around for a year or two, but then they’re going to fade into retirement. And the purchaser is stuck with a business that no one knows how to run.
On the other hand, businesses with a strong Executive Team are extremely valuable. So, you should be focusing on helping to build that team—one that covers the main functions of your business with relatively little oversight from your owner.
Do that, and you’ll be a superstar.
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