Growth Strategy Trends Within the Construction Industry
Senior Surety Bond Broker & Advisor at Anderson and Cantania Surety Services, Chris Smith, discusses growth strategy trends within the construction industry with Johanna Quintero on Episode 6 of Smartvine Podcast.
(video transcript)
Introduction: Welcome to the Smartvine Podcast where we bring together the art and science of building a better work culture by aligning your team customers and strategy.
Let’s discover together the smarter way to build your business.
Johanna Quintero: Hello, hello and welcome to the next episode of the Smartvine podcast. Today I’m so excited to be joined by my friend, Chris Smith with Anderson & Catania Surety Services.
Chris is a senior surety bomb broker and advisor and he has a lot of great experience working with construction companies. Chris, thank you so much for joining me today.
Chris Smith: It’s good to be here.
Johanna: Yeah thank you for sharing your great expertise with my network. Okay, so let’s get started. Chris, I really want to focus our discussion towards the construction industry and specifically for subcontractors within that industry since a big part of my clients are in construction.
So, my first question is what growth and strategy trends are you seeing in the industry right now and how much is COVID impacting both of those?
Chris: Okay, so everything’s market-dependent but the construction industry has been relatively good even through COVID because the government, the various governments, deemed construction to be essential.
Johanna: Yeah
Chris: So, in that way, the industry was quite lucky and the spending has been pretty consistent, especially in the federal market. There are maybe three examples to help understand what market-dependent means.
The first is that spending on network and communications infrastructure has been very high and that’s across markets.
Second, and these are both from Florida…I talked to this individual yesterday….He’s a drywall and framing subcontractor and he says that the residential and multi-family market in northwest Florida, Tampa Metro, is booming; it’s very strong.
Johanna: Well! Residential, it’s doing good
Chris: Yeah, so head across the state, all the way across to the west side, Jacksonville area, I talked to another commercial flooring contractor who works for a mall developer, and that project — which is a large project — was stopped. The owner issued a stop-work order. The subcontractor cannot bill and the re-mobilization date is uncertain. So you have two different operating realities there in the same state in two different market segments, so everything is market-dependent.
Johanna: Chris, I’m really glad that you highlighted how the public sector is actually stronger than the private sector right now. That being said, there are some common trends and I’m glad you talked about that as well. So obviously a key issue for any construction company that is trying to grow is the ability to get access to banking and bonding, right? So if they cannot achieve this, then at some point it will slow them down and prevent them from growing.
So my question to you is how can small construction companies get to the point that they are able to get
Bonds and loans, especially if they are just starting?
Chris: Okay I’ll stay focused on the bonding side…
Johanna: Yes ,okay
Chris: …with a few factors that impact the banking side as well. The most important thing for a new company is to know where they’re going. Start with the end in mind. What kind of company are you creating? What kind of revenues are you looking to create? The easiest way to paint that picture is to look ahead five years. If everything goes your way revenue-wise, customer-wise, profit-wise, employee-wise; What does that look like for you?
And then work it back. Work it back for bonding to the financial statements and what does the financial statement need to look like? Work it back from a risk standpoint. What risks are you entertaining? Work it back from the standpoint of how many employees you have, how much equipment you’ll need, and start to make decisions from that point forward.
It’ll make it easier to tell your growth story to a bonding company, which is really important: to be able to communicate that clearly, and it’ll make it easier for you to set more realistic goals about how much growth you can achieve in a fiscal period
Johanna: Definitely
Chris: So start with that end in mind. The other thing I think which is really easy to do for a small company is to pull your FICO score, your personal credit score. Get into that report. See what the guts of it look like. See what your score is. If there’s problems, get ahead of them before you present it to a bonding company or a banker or bank because that’s your first impression if you don’t have a lot of financial assets on your balance sheet.
And believe it or not, it’s really never been more accessible to get a bond. And the FICO score will generally, if it’s acceptable which is — they never quite tell us what “acceptable” means — but if it’s 650 or higher let’s say you can obtain a bond, a single size bond, up to $500 000 and for many companies that’s a substantial project when they’re first getting started. So, pulling that FICO score, if there’s a problem, get a credit counselor on board. There’s a lot of them. They’re relatively inexpensive and managing that score is really important when you’re getting started.
There are other tools one of them is the SBA Surety Bond Guarantee Program and that is a program where the federal government guarantees your bond to a bonding company up to 90 percent. And what that does, if you’re marginal on an approval or you’re not quite there on your financial statements, it gets you over the hump and it enables the bond to be approved under certain conditions.
The most unique aspect of that program from my standpoint is if you have a bank line of credit from a commercial bank and you’re not using all of it, whatever the unused portion is, the SBA will give you 20 times leverage in bonding capacity for that amount. So, essentially, they’re treating that bank line as cash, which the traditional bonding companies, they don’t do that. It’s a tremendous advantage and it can often get contractors into larger projects. It can get them into new markets. It can really accelerate growth. So that’s the SBA Surety Bond Guarantee Program.
Johanna: Wow Chris, this is great information for a small and medium business. Thank you so much, especially about how a personal credit score can play such a huge role in owners being able to break into the bonding market to help grow their business.
My last question is what other advice will you give to a small construction company that they are trying to grow right now in this global crisis
Chris: Okay, so i’m going to give two pieces of advice here. One is get a mentor or a management consultant to help you, and I obviously understand that that’s your specialty, okay Johanna? And so somebody like Johanna or somebody very senior in the industry that has been where you want to go, maybe a retired executive or retired company owner that sold their company…someone that can act as an advisor and a sounding board for decision-making.
This doesn’t mean that you don’t have to do the work. You always have to do the work but you’re looking for help/guidance steering the ship. You’re going to row the boat. You’re always going to have to take the action but having that individual is good for two reasons really. One, it helps shorten your growth curve and two, outside creditors see that there’s an advisory relationship there and that matters. So if they’re having discussions about stretching, growing, extending additional credit whether it’s banking or bonding, sometimes that can make a difference. Getting that outside advice is really important.
From the standpoint of outside advice, next, you really want to fill in your professional services team. What I mean by that is get a construction-savvy accountant, get a construction-savvy attorney, work with a surety bond-focused professional in the bonding industry, work with a construction-focused insurance agent to help manage risk. Build out that team. It’s easy.
You may have to a retainer to the attorney but otherwise there are really no cost to engage the team.
So, it really shows that you understand the importance of having a professional team around you so that you’re making sound decisions and it plays very well with creditors. So get those individuals on on board as soon as possible.
And finally, and really this is a hot-button for me: Professionalize your business development process. The process of just going after whatever, whenever, whoever… that doesn’t work; it’s not sustainable.
You really want to understand and narrow down your target customers, your target market, and really start to go deep in terms of building relationships within those targets. The other thing you need to understand is you need to build out a pipeline and you need to understand how much work you need to have in that pipeline at any point in time to hit your goals.
If you’re winning 25 percent of your work and you want to do a million dollars in a year on top-line revenue, you really have to have four million in revenue opportunities in your pipeline running at any given point in time. In order to do that, you’ve got to have your people tuned into that story. You’ve got to know where to find 4 million. You’ve got to be able to track your effectiveness and pricing work and track your results so that you’re always on top of what’s in your pipeline ,what you’re winning, how it relates to goal-attainment. So, hugely important. Not terribly difficult to implement. You might have to get some help on building out the pipeline… Johanna, I heard you are available
Johanna: Yes!
Chris: But otherwise very, very important to making sure that you’re hitting your goals.
Johanna: That’s what is so important to incorporate a strategic plan and also the organizational alignment because it helps business leaders to understand where is the target that they need to go out there with their people.
Chris, great advice. Actually one of the things that I love about my role in helping construction companies is doing exactly what you are saying about having an advisory team and building a good strategy and have an execution plan so they are in a good position to succeed and get the bonding and loans that they need. That is so important.
So how can anyone that listens to this podcast, that wants to learn more, connect with you?
Chris: Phone or email
Johanna: LinkedIn?
Chris: Love LinkedIn. CSmith@ACSurety.com is the email; 301-305-0362 is the cell phone;or on LinkedIn, whatever you need
Johanna: Perfect. I’m gonna share your information. Chris, thank you so much. Excellent, and now for our audience, thank you again. Tune in next time where we are going to talk to Seth Wesler with Western Consulting about how to use LinkedIn to create communities and build better teams. Chris, thank you so much. Thank you for having us. This was fun. Thanks for listening. Follow us on our social media platforms at Smartvine Consulting for more valuable information on scaling your business and we’ll see you soon.